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"The 'Bible' of the interactive gaming industry." 
—GameWEEK Magazine 





PRESS START TO CONTINUE 



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The Maturing of Mario 
by David Sheff 

■ Chapters by Andy Edd" 



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Featuring A Photo History of Nintendo 




DAVID 5HEFF 

GAME OVER 



David Sheff s articles have appeared in Playboy, Rolling 
Stone, The Observer, and Foreign Literature (in Russia), 
among other publications, and on National Public Ra- 
dio's All Things Considered. His book The Playboy Inter- 
views with John Lennon and Yoko Ono was a Literary 
Guild Selection. Sheff lives in Northern California with 
his wife, Karen Barbour, and son, Nicolas. 



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GAME OVER 


How Nintendo 


Conquered the World 

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This book is dedicated to Karen Barbour, who insists that 
Donatello, Rafael, Leonardo, and Michelangelo are painters, 
not Teenage Mutant Ninja Turtles, and to my son, Nicholas, 
who introduced me to Nintendo, but now prefers reading. 



<A 



; CyberActive 

MEDIA GROUP, INC. 



FIRST GAMEPRESS EDITION, JANUARY 1999 

All rights reserved including the right of reproduction in whole or in part by CyberActive 

Publishing. Published in the United States by GamePress, a division of CyberActive 

Publishing In., Wilton, CT in 1999. 

Copyright © 7999 

ISBN 0-966 9617-0-6 



Portions of this work were originally published in Focus, Men 's Life and Rolling Stone. 

Grateful acknowledgment is made to the San Francisco Examiner's Image magazine 

for permission to reprint an excerpt from "Condemned to Be Mario" by Scott Rosenberg. 

Reprinted by permission of the San Francisco Examiner's Image magazine. 

Originally published: 1st ed. New York: Random House, cl993. With new afterward. 
Includes bibliographical references and index. 

1. Nintendo Kabushiki Kaisha. 2. Electronic games industry. 
3. Nintendo video games. I. Title 

CIP 

Book design by Oksana Kushnir 

Cover design by Michael Bouse 

Photography courtesy of Nintendo of America 

Manufactured in the United States of America 
10 987654321 



Acclaim for DAVID 5HEFF'< 

GAME OVER 



"An intriguing portrait of what it takes to succeed in today's com- 
petitive computer industry." — Washington Post Book World 

"A fascinating story of the birth and growth of video games . . . 
Sheff has done a fine job explaining the high-tech computer world 
story of complicated games that children can play — and the peo- 
ple who are bringing this new world to us, whether we want it or 
not." — Kansas City Star 

"A fascinating look at the Japanese way of doing business ... At 
times, Game Over reaches the pitch of a Cold War spy novel." 

— L.A. Daily News 

"Writing with the playful pluck of Mario, the little protagonist of 
the Super Mario Bros, games, Sheff . . . unfolds an engrossing 
tale of how Kyoto-based Nintendo, once a small playing-card com- 
pany, transformed the U.S. toy and computer businesses." 

— People 

"Vivid portraits of the principal players and shrewd insights into 
Japanese and American corporate culture make this an unusually 
enjoyable business history." — Entertainment Weekly 

"My advice is simple. Read Sheff 's book." — Wichita Eagle 

"David Sheff lays bare the corporate machine beneath the high- 
technology 'fun' of Japan's most profitable company. . . . Sheff 
painstakingly documents the history of Nintendo and its relentless 
rise to dominance of the global toy industry." — Maclean's 

"Game Over is a . . . fascinating look at the Nintendo phenome- 
non, filled with insiders' insights and plausible predictions about 
the future. . . . Sheff 's book is an absorbing read, even for non- 
Nintendo junkies." — Birmingham News 



also by DAVID 5HEFF 

The Playboy Interviews with John Lennon and Yoko Ono 



ACKNOWLEDGMENTS 



Brief portions of this book appeared in Rolling Stone, Playboy, 
Men's Life, and San Francisco Focus. Thanks to sources named and 
unnamed, the hundreds of interview subjects. Thanks particularly 
to the following: At NCL, Hiroshi Yamauchi, Hiroshi Imanishi, 
Sigeru Miyamoto, Masayuki Uemura, Genyo Takeda, Gunpei 
Yokoi, Reiko Wakimoto, and Yasuhiro Minagawa. At NOA, Mi- 
noru Arakawa, Howard Lincoln, Peter Main, Al Stone, Phil Rog- 
ers, Gail Tilden, Don James, John Sakaley, Toshiko Watson, Sandy 
Hatcher, Sherrie Mennie, Tony Harman, Blaine Phelps, and nu- 
merous others, particularly Bill White. Yoko Arakawa was espe- 
cially gracious and forthcoming. At Sega, Al Nilsen. At Atari 
Games, Hide Nakajima, Dennis Wood, Dan Van Elderen, and 
Barry Kane. At Electronic Arts, Trip Hawkins, Bing Gordon, Larry 
Probst, Danny Brooks, and particularly Holly Hartz, who sets the 
standard for public relations in this industry. 



ACKNOWLEDGMENTS 



At other Nintendo licensees, Henk Rogers, Sheila Boughten, 
Greg Fischbach, Bruce Lowry, Gilman Louie, Les Crane, Bob 
Lloyd, Allyne Mills, Joe Morici, Kathleen Watson, Kathy Prall, 
and the many others. At Hill & Knowlton, Jeff Fox, Karen Peck, 
Don Varyu, and especially Lynn Gray, for support above and be- 
yond the line of duty when she initially championed this book. At 
Golin/Harris, Alison Holt and Susan Iannetta, and at Manning, 
Selvage and Lee, Charlene Gigliotti. 

Analysts, including David Leibowitz (American Securities), 
Manny Gerard and Sean McGowan (Gerard Klauer Mattison & 
Co.), Robert F. Kleiber (Piper, Jaffray & Hopwood), and Andrew 
J. Kessler (Morgan Stanley), periodically contributed their exper- 
tise. 

I'd also like to thank Robert M. Callagy, Vladimir Pokhilko, 
Vadim Gerasimov, Howard Phillips, Nolan Bushnell, Robert 
Stein, Ron Judy, Suzuki Eiichi, Miyuki Grace, Jim Mackonochie, 
Steve Arnold, Elliot Luber, Deborah Brown, Phil Adam, David 
Ellis, Ben Myron, Mark Smotrof, Les Inanchy (Sony), Greg Zach- 
ary of The Wall Street Journal, Casey Corr, Tim Healy and Tom 
Farrey of the Seattle Times, Rich Karlgaard at Forbes ASAP, Jaron 
Lanier (J.P.L.), Sharon Fitzpatrick (The Learning Co.), Lynn Hale 
and Sue Sesserman (Lucasfilm and LucasArts), Marty Taucher 
(Microsoft), Linda Goetz, and Jenifer Van Horn. In Japan: 
Keisuke Ono, Yukio Miyazaki, Tsunekazu Ishihara, Yoshio Ito, 
Koh Shimizu (Sony), and Nishi Saimaru. 

Special appreciation goes to Alexey Pajitnov, the creator of 
"Tetris." Also to many sources who spoke under the condition of 
anonymity. At Random House, I would like to acknowledge the 
contributions of Deborah Aiges, Carol Schneider, Lesley Oelsner, 
Mitchell Ivers, Gail Blackhall, Lawrence LaRose, Becky Simpson, 
Brian Hudgins, and designer Oksana Kushnir, Amy Edelman for 
pushing deadlines, and Veronica Windholz, Ed Cohen, and Sybil 
Pincus for tireless copyediting. 

Special thanks to my editor for his insights and his devotion to 
books, to Binky Urban, my agent, for her counsel and commit- 
ment, and to Barry Golson for assigning the original Nintendo 
article from which this book grew. My thanks as well to Arthur 



ACKNOWLEDGMENTS 



Kretchmer and Steve Randall, my editors at Playboy magazine; to 
Mike Moritz and Fred Bernstein for their insights and advice. 
Thanks also to Amy Rennert, who assigned the article on Nolan 
Bushnell for San Francisco Focus; to Don and Nancy Barbour, as 
impeccable a research department as anyone could ask for, and to 
the rest of my family, Joan, Sumner, Debbie, Mark, and Jenny; 
Steve, Susan, and Don, and my extended family of friends, includ- 
ing Armistead, Terry, Peggy, Susan, Buddy, Nick, and Doug. 



CONTENTS 



GAME OVER 

1 . A New Leader of the Club 3 

2. In Heaven's Hands 12 
3. 1, Mario 37 

4. Inside the Mother Brain 57 

5. Coming to America 80 

6. For a Fistful of Quarters 107 

7. Reversal of Fortune 1 3 1 

8. Enter the Dragon 158 

9. The Grinch Who Stole Christmas 1 87 

1 0. Game Masters 2 1 3 

11. The Big Sleep 236 

12. Game Over 261 

13. From Russia with Love 292 

14. The "Tetris" Song 315 

15. Sonic Boom 349 

16. Borders 390 

Epilogue: Forest of Illusions 422 

Afterward to the Vintage Edition 429 



GAME OVER: PRESS START TO CONTINUE 

Photo History of Nintendo 434 

Acknowledgments 1999 435 

Preface 1999 437 

1 . Riding the Hardware See-Saw 443 

2. Ch-Ch-Ch-Changes 457 

Selected Bibliography 475 

Index 479 



GAME OVER 



Games are popular art, collective, social reactions to the main 
drive or action of any culture. [They] ... are extensions of social 
man and of the body politic. . . . 

As extensions of the popular response to the workaday stress, 
games become faithful models of a culture. They incorporate both 
the action and the reaction of whole populations in a single dynamic 
image. . . . The games of a people reveal a great deal about them. 



— Marshall McLuhan 
Understanding Media: 
The Extensions of Man 



\ 



A NEW LEADER \^ 

OF THE CLUB ^ 



Most people think video games are kids' stuff, and it is true that in 
"Super Mario Bros. 3," mushrooms give super strength, enemies 
have names such as Morton Koopa, Jr., and a pudgy, suspendered 
hero jumps on the heads of Little Goombas. Yet behind "Super 
Mario Bros. 3," a video game played on the Nintendo Entertain- 
ment System (NES), is a business that is very grown-up indeed. In 
America alone, revenues for that one game have topped $500 
million; in the field of entertainment, only the movie ET has 
grossed more. 

In the video-game market, where shooting and mass destruction 
were the norm, the first "Super Mario Bros." game created a 
revolution in 1985 by introducing elements not often associated 
with computer terminals and controllers: wit and humor. Mario, 
the main character, made an unlikely hero— a plumber who can 
wisely choose to avoid enemies as well as to confront them. In this 
whimsical world, bright green and red mushrooms make Mario 



GAME OVER 



grow taller and more powerful. There are bomb-hurling mice, 
waltzing cacti, and turtles who can use their shells as missiles. 
Surprises that give players more time and extra lives lurk in the 
most unlikely places. Children, who loved the characters and be- 
came ensnared in the maze of the game, which was replete with 
Pavlovian rewards and punishments and carefully programmed in- 
creases in challenge, were captivated. 

When "Super Mario Bros. 2" was released, the beloved charac- 
ters from the original game trekked through new cartoon scenery. 
This time they confronted foes not with cannon or lasers but with 
turnips, carrots, and pumpkins. Thus equipped, players headed 
into uncharted waters, where perseverance, wit, luck, and intermi- 
nable hours of practice counted for everything. "Super Mario 2," 
like its predecessor, was a great equalizer. The game gave kids the 
sort of power they couldn't get anywhere else. It was safe for them 
to make mistakes while playing, because there was always another 
chance. The things that ordinarily made kids popular at school 
were not important when they were playing. Also, they had found 
an arena in which they could beat the pants off their parents, not to 
mention confound them with an incomprehensible vernacular 
('Tm in the second world of the Sub-Con, but I can't get past the 
miniboss"). 

Months before it appeared on the market, there were rumors 
about the next "Super Mario Bros." sequel, but no one saw it until, 
in the winter of 1989, a movie hit the nation's theaters. The Wizard 
was less a piece of art than a one-hundred-minute advertisement 
for Nintendo that millions of families paid to see (it grossed $14 
million). The excitement in movie theaters was palpable when kids 
realized they were glimpsing the latest Mario game, complete with 
new bells and whistles: Mario could don a raccoon disguise and — 
best — could fly. 

Kids spread the word on playgrounds and in schools. Legions of 
parents were strong-armed by eight-year-olds. The pressure was 
enormous to be among the first to own "Super Mario Bros. 3." 

Some parents remained oblivious and others refused to bend to 
the pressure, but many millions succumbed. "Super Mario Bros. 3" 
would sell more copies than any video game in history — 7 million 
in the United States and 4 million in Japan. By record-industry 



A NEW LEADER OF THE CLUB 



standards, "SMB3" went platinum eleven times. Michael Jackson 
is one of the few artists to have accomplished that feat. 

The money earned from its video games and the NES system 
that played them transformed Nintendo into one of the world's 
most profitable companies. By 1991 Nintendo had supplanted 
Toyota as Japan's most successful company, based on the indices 
of growth potential, profitability, penetration of foreign and do- 
mestic markets, and stock performance. Nintendo made more for 
its shareholders and paid higher dividends between 1988 and 1992 
than almost any other company traded on the Tokyo Stock Ex- 
change. 

Nintendo's profits per employee were consistently greater than 
those of any other Japanese company (excluding finance, stock, 
and insurance companies). Fujitsu, with profits similar to Nin- 
tendo's, had 50,000 employees. Nintendo had 850. Nintendo, in 

1991, earned about $1.5 million per employee. Internationally, 
Nintendo employed some 5,000 people. That year Sony, with 
50,000 employees, earned $400 million less than Nintendo. By 

1992, the company was consistently earning pre-tax profits of more 
than a billion dollars a year. 

The multitentacled video-game business swelled to consume 
larger and larger segments of the entertainment and consumer- 
electronics industries as well as the toy industry. 

In the entertainment business, Nintendo had become a force 
that could not be ignored. In early 1992, the company profited 
more than all the American movie studios combined and the three 
television networks combined. 

The consumer-electronics industry watched as the Nintendo En- 
tertainment System, in just five short years, was brought into more 
than a third of the households in the United States and Japan. 
Although twice as many homes had VCRs, the movie-playing ma- 
chines were made by various companies, while one company alone 
made all the Nintendo machines. Moreover, the VCR companies 
sold just the machines, not the videotapes that played on them. 
Nintendo, on the other hand, was making hefty profits from an 
ever-expanding list of games in addition to the machines to play 
them on. Consumer-electronics giants like Sony and Matsushita 
Electric Industrial finally woke up to the fact that by the turn of the 



GAME OVER 



century, consumer-hardware companies would be archaic if they 
had no involvement in software. In a game of catch-up, Sony 
bought Columbia Pictures and Matsushita purchased MCA, the 
American movie-and-entertainment giant — attempts to wrest 
some participation in the entertainment software market. 

Nintendo had completely blindsided the American computer 
industry, too. The founders of the personal-computer revolution 
had predicted in the early eighties that computers would soon be 
commonplace in most homes, like toasters. Yet a decade after the 
personal computer was launched, only 24 million American homes 
had them— almost 10 million fewer than had Nintendo systems. 
Worldwide, there were about an equal number of Nintendo sys- 
tems and PCs, some 50 to 60 million. As with VCRs, the PCs were 
manufactured by dozens of companies; less than 10 percent were 
made by the number-one PC company, IBM. With the exception 
of a growing number of illegal pirate versions coming out of Hong 
Kong and Taiwan, just one company manufactured and sold all the 
Nintendo systems. The huge Japanese computer company NEC 
and a video-arcade-game company, Sega, tried to compete with 
Nintendo, but in spite of investments in the hundreds of millions 
of dollars, they shared less than 10 to 15 percent of the market 
through 1991. Companies such as Apple and IBM looked over 
their shoulders and saw Nintendo on their heels. When Apple 
Computer president Michael Spindler was asked in March 1991 
which computer company Apple feared most in the 1990s, he an- 
swered, "Nintendo." 

The computer industry understood why Nintendo had a jump 
on them: Nintendo had predicated its entire strategy on the con- 
trol of both hardware and software. In 1991, Apple and IBM an- 
nounced an alliance to take on Microsoft, the software giant. In 
1992, IBM also announced an alliance with Time Warner. Like the 
consumer-electronics companies, the computer-hardware giants 
realized that to remain competitive, they needed access to and 
control of software. The software edge would become particularly 
important in the looming battle for shares in the next technologi- 
cal revolution— multimedia and networking. That industry, which 
combines computer power with home-entertainment systems, in- 
tegrating television, video recorders, CD sound systems, and the 



A NEW LEADER OF THE CLUB 7 

telephone, was judged by the Los Angeles Times to be worth a 
mind-boggling $3.5 trillion annually by the next century. The ques- 
tion was which company would become the Maytag of home com- 
puters in the potentially mammoth industry. 

Did Nintendo have the foresight and wherewithal — and sheer 
temerity — to be that ambitious? Evidence that it did was hidden in 
the belly of the NES unit. 

On the bottom of the innocuous, gray game-playing machine 
was a panel. When it was removed, a computer cable connector 
was revealed. A two-way doorway to the main processor, this port 
allowed the Nintendo system to work as a terminal that could be 
connected to a modem, a keyboard, or auxiliary storage devices. 
The Nintendo system was rolled into living rooms by children who 
welcomed (and worshiped) it as a game, while inside it lurked the 
potential to be transformed into the integral component of the 
largest electronic network in the country. With a phone line 
plugged into it, the Nintendo system could be used to shop, call up 
movie reviews, buy pork bellies, do research, make airline reserva- 
tions, and order a pizza. 

The machine's greater possibilities were first tapped in Japan 
when Nintendo announced the Family Computer Communica- 
tions Network System. A similar network planned for the United 
States had the potential to dwarf the Prodigy network (a joint 
venture of IBM and Sears Roebuck), the most-used network in 
the country, which had only 1.3 million subscribers by January 
1992. 

Nintendo's success had an enormous impact on numerous in- 
dustries worldwide. Besides the competing hardware companies, 
more than a hundred companies that made video games rode the 
Nintendo wave. In 1992 they had worldwide sales of 170 million 
cartridges, at an average cost of $40 each — almost $7 billion 
worth. 

Once it became clear that the huge video-game market showed 
no signs of disappearing, all kinds of companies began lining up to 
become licensed producers of Nintendo-compatible games. Com- 
panies such as Electronic Arts and Software Toolworks, which 
made only games on floppy disks for computers, had tried to hold 



GAME OVER 



out, but Nintendo became too big to ignore. They signed up, as 
did some entertainment companies, including Lucasfilm and Dis- 
ney (through another company called Capcom). Companies that 
were already cleaning up with coin-operated video games set up in 
arcades, malls, bowling alleys, and pizza parlors entered the Nin- 
tendo business too, adapting their hit arcade titles to the home 
system. 

Other companies affected by Nintendo's success were outside 
the video-game industry. Since computer chips were used in both 
the Nintendo hardware and software (the game cartridges con- 
tained special chips), Nintendo used more of certain kinds of 
semiconductors than any other company in Japan. Nintendo prod- 
ucts accounted for more than 3 percent of total Japanese semicon- 
ductor production in 1991. 

Quietly, Nintendo sailed past stalwart American corporations 
such as IBM, Disney, and Apple Computer, not only in profitabil- 
ity but also in impact on American culture. In the last part of the 
twentieth century, leaps in technology ushered in a new era in 
which children and a substantial part of the culture as a whole 
would be more influenced by interactive electronic media — in 
their simplest form, video games — than by television, which had 
defined the previous generation. The signs of the first Nintendo 
generation appeared as early as 1989 and 1990. A study by Nielsen 
Media Research, the company that monitors television viewing, 
showed that within a particular age group more kids were playing 
Nintendo than were watching the major children's TV network, 
Nickelodeon, at certain times on certain days of the week. Kids 
already spent more time in electronic environments (TV, radio, 
records) than they did in school or talking with friends or parents. 
Some of them were spending an additional two hours a day on 
Nintendo. 

Even during the hours when kids weren't playing video games, 
they were being showered with the culture of Nintendo. Television 
cartoon shows based on Nintendo games and characters were 
watched by more kids than any other TV programs. Other cartoon 
shows (including The Simpsons, Teenage Mutant Ninja Turtles, Chip 
'N Dale Rescue Rangers, and Duck Tales) became Nintendo games. 
A record of Nintendo songs and a feature film were developed; 



A NEW LEADER OF THE CLUB 



there were Nintendo magazines, hooks, videos, cereals, note- 
books, drinking mugs, T-shirts, board games, puzzles, dolls, wall- 
paper, and bed sheets. Nintendo infiltrated every conceivable 
market until the question was not whether Nintendo's invasion 
would succeed but what the invaders would leave in their wake. 

What, asked parents, teachers, and sociologists, were the long- 
term effects of so much game playing on kids' self-images, rela- 
tionships, and social skills? How did Nintendo affect learning? 
Did the games encourage violence? Did they empower kids or 
make them passive? Did the impact vary among different age 
groups and genders? 

Some saw video games as insidious hypnotizers and mind de- 
stroyers; others viewed them as training tools for the cybernetic 
world of the future. One proponent claimed that children who 
excelled at one game, "Tetris," scored higher on intelligence tests. 

Besides the attempts to figure out the effect of Nintendo's inva- 
sion, there was also a great deal of intellectualizing about why 
Nintendo had become so pervasive. In an essay in the San Fran- 
cisco Examiner's Image magazine in September 1991, "Con- 
demned to Be Mario: The Video-game Plumber as Existential 
Hero," Scott Rosenberg wrote, "Mario is a character, a dumpy 
fellow with a big mustache; but he is also a stand-in, your iconic 
representation in the video universe. ... If millions of children 
and adults have melded with Mario ... it may not be simply a 
matter of our shortening attention spans, our craving for novelty 
or our susceptibility to expensive ad campaigns. It may be that in 
Mario's fate— stuck in a world not of his own choosing, charged 
with a nearly impossible mission, doomed to perish sooner or 
later, yet free while he lives to grow, learn, slay demons and stop 
to smell the Fire Flowers— people are catching a crude, bright, 
hypnotic reflection of their own lives." Or maybe it was just the ad 
campaign. 

One thing was inarguable, however. Nintendo had successfully 
entered the collective consciousness. "Q" ratings, which indicate 
the popularity of politicians, movie stars, and other public figures 
based on controlled surveys, showed that in 1990 the Nintendo 
mascot, Super Mario, was more recognized by American children 
than Mickey Mouse. How significant was the news? Uncle Walt 



10 GAME OVER 

Disney and Mickey Mouse were as American as — well, nothing 
was more American than Walt and Mickey. The idea that Mario 
had become more popular than Mickey was to some a travesty 
that signaled the next phase of the Japanese invasion. Japan had 
already captured America's wallets. The country's minds — begin- 
ning with children's minds — were next. 

Nintendo had become Japan's biggest cultural export. Indeed, 
whereas the rest of the world devoured Japanese hardware — cars, 
Walkmans, TVs — Japanese "software," such as movies, books, art, 
and music, had little impact outside Japan. The exception was 
video games. The most widely known Japanese cultural ambassa- 
dor was Mario and with him came a new set of values. 

Generations of children had been imbued with Mickey's mes- 
sage: We play fair and we work hard and we're in harmony. . . . 
M-I-C . . . See you real soon. K-E-Y . . . Why? Because we like 
you . . . Mario imparted other values: Kill or be killed. Time is 
running out. You are on your own. Donald Katz, in a February 1990 
Esquire magazine article, observed that the lesson from Mario is 
"there's always somebody bigger and more powerful than you are 
[and] . . . even if you kill the bad guys and save the girl — eventu- 
ally you will die." 

Oh no! Not again! At the end of summer 1991, the children of 
America heard that the sequel to "Super Mario Bros. 3" was on its 
way. For their parents, this was even more terrible news than the 
last time, because Nintendo had also introduced an entire new 
video-game system more powerful and of course more expensive 
than the original. "Super Mario Bros. 4" would play only on the 
new Super Nintendo System. 

In Japan, kids swamped stores to get their Super systems as 
soon as it was released. Most of them went home empty-handed; 
the game sold out in three days. Stores illegally parceled them out, 
sometimes inflating the prices, other times forcing buyers to pur- 
chase additional products if they wanted a Super Nintendo Sys- 
tem. 

In the United States, in the midst of a recession, Nintendo was 
less confident that the $200 Super NES would sell. By 1991, some 
observers of the video-game industry, noting slower sales and 



A NEW LEADER DF THE CLUB 1 1 

gloomier projections, suggested (almost gleefully) that kids 
seemed to be cooling off to Nintendo — that this might be the 
beginning of Goliath's fall. But Nintendo had no intention of go- 
ing gently. To push the new system, Nintendo packaged "Super 
Mario Bros. 4," which went under the name "Super Mario 
World," together with the Super Nintendo hardware, like the prize 
in a box of Frosted Flakes. 

Soon the playgrounds were abuzz with news about "Super Ma- 
rio World." Even those children who had grown bored with the 
original Nintendo system were excited, encouraged by the com- 
pany's $25 million ad campaign. Parents, who had watched with 
relief as their children's fanaticism for Nintendo seemed to be 
fading, were greeted with a new wave of fervor. "Dad," the chil- 
dren enthused, "you won't believe what Mario can do now . . ." 
In October 1991, Nintendo issued a press release titled "Nintendo 
Loyalists Put Long-term Entertainment Value Ahead of Short- 
term Budget Cuts," in which it was reported that the Super NES 
was selling at a rate of twelve units every retail minute, or one 
every five seconds. In spite of the recession and all the gloom and 
doom, Nintendo projected that 1992 would be its biggest year yet, 
with sales in America topping $4.7 billion. 



\ 



IN HEAVEN'5 \ v 

HAND5 ^ 



In the eastern part of Kyoto, the ancient Japanese capital city, near 
the famous Heian shrine, is a slumbering side street now called 
Higashi-ogi. In the fifteenth century, it was a pathway of hard- 
packed dirt that led to the Shogoin Gotenso, the summer castle of 
the emperor. Across from the castle stood the home of the em- 
peror's special doctor. 

Centuries later, this home was bought by Fusajiro Yamauchi. 
The Yamauchis would live there for generations, behind an im- 
mense gate held together with large bolts and rusted diamond- 
shaped brackets. The huge metal hinges that hold it up are 
serpents, attached to beams more than a cubic foot thick. The gate, 
which has survived for five hundred years, locks shut with a heavy 
cross-bar. 

In the year Heisei 4 (1992), the gate is still flanked by a high 
fence that winds around the perimeter of the Yamauchi property. 
The fence is crowned with coils of razor wire, iron spikes with 



IN HEAVEN'S HANDS 13 

dagger points, and deadly-sharp bamboo spears. Their purpose is 
unambiguous. 

Inside is a pathway made of flat stones. Immediately to the right 
is a two-story guardhouse the size of a child's treehouse. By the 
pathway across from the guardhouse are flagstones that have been 
set in the earth for centuries, all but buried by velvety moss. They 
lead to the center of a lush and tangled garden of small foot- 
bridges, a patchwork quilt of textures and greens: feather-leafed 
bonsai, sculpted, dome-shaped bushes, and gold-flecked field 
grasses. Amid the green are cabernet-red maples that seem aflame. 

Hidden throughout the foliage are a lantern, a bronze crane, 
and a stone shrine. Overgrown pathways coil through the garden, 
which was once rigidly tended, corralled in, immaculate, until the 
current generation of Yamauchis let it grow wilder. 

One path through the garden leads to a teahouse with sliding 
cedar-framed paper doors and floors of straw tatami mats. Gener- 
ations of Yamauchis prepared the tea ceremony there. Now it is a 
storage closet filled with boxes and mattresses. 

Behind the garden is the residence, a traditional home built in 
the style of a Japanese temple. Homes in Japan are measured not 
in square feet or meters but in tatami mats — the book-thick, rect- 
angular sections of sweet-smelling, woven straw. In past genera- 
tions, wealth was measured by the number of mats (each smaller 
than a twin bed) in a family's home. The average home has eight or 
ten tatamis; the Yamauchi home has 152. 

The rooms are partitioned by shoji screens, and the walls that 
look onto the garden are floor-to-ceiling glass, outlined by dark, 
weathered wood. Newer beige stucco clay covers some walls, but 
the peaked roof is finished with aged gray-blue tiles in the pattern 
of a choppy sea. Around the periphery the tiles have circular faces 
carved with the symbol of balance and harmony, the intertwined 
teardrops, yin and yang. 

Fusajiro Yamauchi was an artist and craftsman during the Meiji 
period, at the end of the time that Western civilization describes as 
the nineteenth century. 

Yamauchi, reputed to be fair, good-humored, and skillful, made 
karuta, playing cards. The Portuguese and Dutch had brought card 
games to Japan as long as 350 years ago, but the cards Yamauchi 



1-4 GAME OVER 

made had more in common with ancient Japanese games that were 
played with intricately painted seashells. Hanafuda, or "flower 
cards," smaller and thicker than Western cards, came to replace 
seashells, but the elaborate, richly colored images on them re- 
mained. 

Instead of number and picture cards, the forty-eight cards in a 
hanafuda deck were painted with a scheme of symbols: for exam- 
ple, a deer, the wind, a chrysanthemum, a boar, the moon. There 
were twelve suits, one for each month of the year. The pine and the 
crane, which in Japan symbolize long life and good fortune, repre- 
sent January; the nightingale and plum-tree blossoms, February; 
cherry blossoms, March, and so on through the year to the winter- 
blooming paulownia, with its fragrant clusters of violet flowers, for 
December. Individual cards within the suits had symbols — rain 
with a poet, for example, a highly valued card, worth twenty points; 
or wisteria, more common, worth one. 

The most popular hanafuda game, matching flowers, appeared 
to be a simple game of matching images in order to make packs, 
but it could be as complex as bridge, and it was taken as seriously. 

Yamauchi founded Nintendo Koppai in Meiji 22 (1889), to pro- 
duce and sell the handmade cards. The kanji characters he chose 
to make up the name of his new company — nin-ten-do — could be 
understood as "Leave luck to heaven," or "Deep in the mind we 
have to do whatever we have to do." The most common reading of 
it was "Work hard, but in the end it is in heaven's hands." 

Yamauchi made the paper for the flower cards in the traditional 
way, from the bark of mulberry, or mitsu-mata, trees. He pounded 
the bark into a paste and added clay to give it more weight. Thin 
layers were dried and pulled and shaped. The craftsman regarded 
paper as a living creature with a will of its own. Yamauchi fought 
with it until, at the end, it succumbed to his will, its new form. 

Several layers were pressed together until the rigid thickness of 
a hardback book cover was achieved. Yamauchi designed a wood- 
block printing system to emboss the outline of the individual cards 
on a large sheet of the paper. He laid a series of stencils over the 
paper and, using luminous inks made from flower petals and ber- 
ries, filled in the drawings. Backgrounds were red. Grass was black. 



IN HEAVEN'S HANDS 15 



The full moon was left unpainted, the straw color of the paper. The 
pigments bled slightly together when they met, so each card 
seemed hand-dyed. 

Nintendo's hanafuda cards, called Daitoryo (or President), be- 
came the most popular cards in the Kyoto region. They were sold 
in Nintendo's shops in Kyoto and Osaka. Nintendo also made 
cards with different symbols that were sold in other regions. 
Kanto's, for instance, had swords, mountains, and human beings. 

So long as hanafuda was solely a domestic amusement, Nin- 
tendo's business remained small and only modestly profitable, but 
business increased when the flower cards began to be used for 
gambling. In the absence of horse or dog racing or sports pools, the 
yakuza, Japan's equivalent of the Mafia, operated high-stakes 
games of hanafuda in casino-like parlors. Nintendo profited hand- 
somely, since professional players would begin each new game with 
a fresh deck, discarding the old one. To keep up with the demand, 
Fusajiro Yamauchi trained apprentices to mass-produce the cards. 

He expanded his business again in 1907, when Nintendo became 
the first Japanese company to manufacture Western-style playing 
cards, which were becoming popular in Japan. Yamauchi, who had 
been selling his cards only in Nintendo's shops, now needed 
greater distribution. He negotiated a deal with Japan Tobacco and 
Salt Public Corporation, the tobacco monopoly, and that company 
began selling Nintendo karuta in its cigarette shops throughout the 
country. 

It was a profitable arrangement. By the time Fusajiro was ready 
to retire, Nintendo was by far the largest Japanese playing-card 
company. 

Fusajiro Yamauchi had no son. If Nintendo was to remain in the 
family, Japanese tradition required that his daughter, Tei, marry a 
man who could take over for him. A marriage was arranged with a 
stern, hardworking student named Sekiryo Kaneda. He agreed to 
take the Yamauchi family name, as was custom if he wanted to 
enter his bride's family's business. In 1929, Sekiryo Yamauchi be- 
came Nintendo's second president. 

Although Sekiryo and Tei's home life was not easy (she stoically 
tolerated her husband's philandering), they prospered. Sekiryo's 



16 GAME OVER 

outside business passion was real estate, and the Yamauchis came 
to own a sizable portion of eastern Kyoto as Sekiryo worked to 
transform Nintendo. 

In 1933, he established a joint-venture corporation called 
Yamauchi-Nintendo and moved from the original, modest 
hanafuda shop in Kyoto to a ferroconcrete building he had con- 
structed next door. In 1947, he created a distribution company 
called Marufuku to sell new varieties of modern, Western-style 
playing cards — pinochle and poker decks — with fancy backs. He 
built a sales force that called on small and large shops all over 
Japan. To produce the cards more quickly and efficiently (with 
paper bought from suppliers) he developed an assembly line of 
workers. Nintendo became an efficiently run business with a rigid, 
hierarchical management structure. Industrious managers, pres- 
sured to surpass the performance of their colleagues, were notori- 
ously tough on subordinates. 

Sekiryo and Tei were the second generation of Yamauchis to 
have daughters but no sons. Kimi, their eldest, married Shikanojo 
Inaba, from a respected family of craftsmen. Like his father-in-law 
before him, Inaba adopted his wife's surname and thereby became 
the heir apparent to Nintendo. It was assumed that Shikanojo 
Yamauchi would take over when Sekiryo retired. 

In 1927, Shikanojo and Kimi had a child, Hiroshi, the first 
Yamauchi male to be born in three generations. Hiroshi was five 
when Shikanojo ran away, abandoning his wife and son. The young 
boy was told that his father was worthless and deceitful. Nothing 
else was ever said of him. 

Disgraced, Kimi began divorce proceedings and moved in with 
her sister, leaving Hiroshi in the care of her parents. They reared 
him with the same iron fist with which they ran Nintendo. They 
attended to his education, his grooming, and his manners with 
equal severity. But Hiroshi rebelled, and the older he got, the more 
intractable he became. 

Arrogant and impudent, Hiroshi disregarded his grandparents 
as he grew into a balefully handsome and debonair gentleman who 
carried his small body with conceited sturdiness, his head jutting 
forward. He wore his thick hair back and his eyebrows swept down- 
ward around his dark eyes. Hiroshi dressed in expensive, well- 



IN HEAVEN'S HANDS 



tailored clothes. He kept his fingernails long, manicured, and pol- 
ished. He was sullen and bitter, yet he disguised his moods with 
levity and a dust-dry wit. His temperament was the legacy of an 
absent father and his grandparents' scorn. 

Hiroshi saw his mother on occasion, but Kimi, who never remar- 
ried, had become more like an aunt. She worked at Nintendo, 
where she ran a subsidiary that was involved in sales. 

Hiroshi Yamauchi never saw his father again. Shikanojo had 
brought shame and dishonor to the family, and when he returned, 
aged and ailing, desperate to see his only son, Hiroshi refused to 
speak to him. 

One day when Hiroshi was in his late twenties, his hair already 
graying, he heard from a half sister he didn't know he had: their 
father had died of a stroke. She said Hiroshi should honor his 
father's memory by attending the funeral. 

Yamauchi sat alone for a full day before deciding he would go. 

At the funeral, Hiroshi met his four half sisters, his father's 
second wife, and an aunt he had never known. He was over- 
whelmed when his aunt told him he looked exactly like his father, 
and he wondered what else he had inherited from Shikanojo. He 
also wondered what price a son would have to pay for refusing to 
reconcile and forgive his father. 

Hiroshi grieved for months after the funeral. He cried freely; the 
death changed him, and a part of him never seemed to heal. 
Throughout the rest of his life, he made regular visits to Shika- 
nojo's grave. 

Hiroshi was sent to a preparatory school in Kyoto in 1940, and 
Sekiryo planned on sending him to a university to study law or 
engineering. But war came, and all lives in Japan were put on hold. 
During the war, Hiroshi's grandmother, Tei, emerged as the leader 
of the Yamauchi family. The rest of the family would go under- 
ground when the air-raid sirens wailed through Kyoto nights, but 
Tei resolutely went about her business as if nothing was out of the 
ordinary. 

Tei would not consider allowing Hiroshi to enter the military. 
When the war began, he was too young to fight, and by the time he 
could have been called up, the tide had already turned and the 
Yamauchis knew that Japan would lose. To keep him safely out of 



GAME OVER 



the war, Tei made Hiroshi stay in school, and he was given an 
assignment in a military factory. 

Rice and other food were scarce; most people in the area sur- 
vived on little but potatoes. Yamauchi, however, carried a precious 
rice lunch to work each day, from the stockpile in Tei's pantry. 
During his lunch break, Hiroshi noticed that a supervisor was hun- 
grily eyeing his rice. Hiroshi shared it with the man and was re- 
warded, that afternoon, with time off. Hiroshi went out to a field 
and took a nap. After that, Yamauchi brought two lunch boxes to 
work each day, one for himself and one for the supervisor, and 
each day he was excused from work. 

When the war ended in 1945, Yamauchi enrolled in Waseda 
University to study law. He also entered into a marriage arranged 
by his grandfather. His bride was Michiko Inaba (no relation to 
Shikanojo), a descendant of a very high-ranking samurai, loyal to 
the daimyo who lorded over Shikoku Island during the early Meiji 
period. This powerful and wealthy samurai had moved from Shi- 
koku to Kyoto, where he married and took the Inaba name. He 
opened a small business, making delicate cloisonne pieces — Inaba 
cloisonne would become known throughout the world. 

In Japan, when a marriage was formally arranged, the couple's 
parents would meet to discuss the match. However, because 
Hiroshi's grandparents were making the match, the couple's first 
date was a meeting of the two clans: the matchmaker was host to 
Sekiryo and Tei and Kimi Yamauchi as well as Michiko's parents 
and four grandparents. The couple was married soon after in a 
traditional ceremony. 

When Hiroshi was twenty-one his grandfather had a stroke. 
Sekiryo asked that the young man be sent in to see him. His grand- 
father, propped up on pillows on his bed, spoke soberly to Hiroshi. 
As the first Yamauchi son since Fusajiro, Hiroshi would assume 
the position that was supposed to have been his father's. He would 
have to leave school and immediately come to work at Nintendo, 
as president. 

Hiroshi, responding without emotion, said he would take over 
the company, but he insisted on several conditions. The main one 
was that he must be the only family member at Nintendo. This 



IN HEAVEN'S HANDS 13 

meant that his cousin had to be fired. Hiroshi wanted there never 
to be a question that he was in charge, the sole heir. 

Weak and saddened, Sekiryo had the cousin fired, and, in 1949, 
Hiroshi Yamauchi was appointed the third president of Nintendo. 
The old man died soon thereafter, never sure whether his family 
and the business would survive. Since Sekiryo never saw the suc- 
cess Hiroshi would eventually have with Nintendo, as far as 
Hiroshi was concerned, to Sekiryo he remained an ill-mannered, 
disrespectful, and spoiled child. Hiroshi lived with the knowledge 
that he had betrayed and disappointed the two most important 
men in his life, his father and grandfather. 

Young President Yamauchi was not welcomed by Nintendo's 
employees. They resented his youth and inexperience and worried 
about rumors that Yamauchi planned a clean sweep of longtime 
employees. True to expectations, Yamauchi fired every manager, 
one by one, left over from his grandfather's reign, in spite of their 
years of dedicated service to Nintendo. Not only did he sever what 
he considered dead weight, but also anyone who had a stake in 
Nintendo's conservative past. He wanted none of the old guard 
around who might question his authority. 

He changed the name of the distribution company to Nintendo 
Karuta (Nintendo Playing Cards) in 1951 and established a new 
corporate headquarters on a lot he bought in town, off a small 
street called Takamatsu-cho. He consolidated all the Kyoto manu- 
facturing there, modernizing the card-making process. 

In an attempt to compete with the modern, fashionable cards 
that were being imported from the West, in 1953 Nintendo began 
manufacturing the first plastic-coated cards in Japan (all varieties 
of cards until that time had been made of uncoated paper). In 
1959, Nintendo made its first licensing agreement — with an Ameri- 
can company, Walt Disney. Playing cards backed with pictures of 
Mickey Mouse and other Disney characters expanded Nintendo's 
market to include young people and families. The Disney cards 
were advertised on television. To reach the new market, Yamauchi 
structured a new distribution system that would get the cards into 
larger department and toy stores. The results were instantaneous: 



aO GAME OVER 

Nintendo's sales shot up. The company sold a record 600,000 packs 
that year. 

Yamauchi was still discontented. He wanted the company to 
expand faster, but he encountered stumbling blocks. In spite of his 
efforts to improve the quality of Nintendo's Disney cards and 
other Western-style pinochle and poker decks, they were still infe- 
rior to the ones being imported from America. The company's 
bread and butter, hanafuda, was, by its nature, a modest business; 
the profits were constant, but there was little room for growth in 
that market. 

Yamauchi dropped the word karuta from the company name, 
which now became NCL— Nintendo Company, Ltd. — as the young 
president planned to branch out into new businesses. To finance 
them, he took Nintendo public, listing the company on the second 
tier of the Osaka Stock Exchange and on the Kyoto Stock Ex- 
change, and became Nintendo's chairman. 

The first product launched by the new company was a line of 
individually portioned instant rice. Add water and— presto! It was a 
dismal failure. Yamauchi then opened a "love hotel," with rooms 
rented by the hour. The business was, for Yamauchi, a personal 
passion; it was said that he was one of his own best customers (his 
infidelities were well known — even by his wife, who ignored them). 

A taxi company Yamauchi started, Daiya, thrived, although he 
grew tired of negotiating with powerful taxi-driver unions, which 
demanded high salaries and expensive benefits for their members. 
He soon folded that company and closed the doors of the love 
hotel. He planned more changes as he moved Nintendo again, this 
time to a larger building, a three-story structure of beige bricks 
with black door and window frames and bars on the windows. 

Yamauchi had concluded that he wanted new businesses that 
could take advantage of one of Nintendo's strongest assets, its 
karuta distribution system, which reached into toy and department 
stores throughout Japan. Nintendo's roots were in entertainment, 
and there would be no more rice or taxis or love hotels. Yamauchi 
set Nintendo on a new course as an entertainment company. 

Hiroshi Imanishi had the demeanor and build of a Rottweiler. 
He gave the appearance of a highly cultivated sophisticate who was 



IN HEAVEN'S HANDS 21 



still common and accessible. Clearly he was also fiercely bright. A 
recent law graduate from Doshisha University, he accepted an 
offer from Nintendo in spite of the fact that he found the president 
glum, reserved, and formal. Hiroshi Imanishi was, nonetheless, 
intrigued by Hiroshi Yamauchi. There was an attractive cocksure- 
ness and obdurate ambition in Yamauchi's speeches about the 
dramatic expansion he planned for Nintendo. 

He revealed the details sparingly. It sometimes seemed as if 
Yamauchi was obsessed by details — "trifles," Imanishi felt — and 
the worry over minutiae was tiresome. Other times there were 
glimpses of a calculated, secret plan. It was a frustrating process, as 
there was minimum communication, only commands, and meet- 
ings often turned into lectures. 

As the company geared up for a series of new ventures, Imanishi 
worked in many departments: administration, finance, planning. 
He eventually became the general affairs manager. But regardless 
of the title he bore, he oversaw the majority of his boss's projects. 
The task by 1969 was to create a department that would set Nin- 
tendo on its new course. Called simply Games, it was the com- 
pany's first research-and-development office, set up in a warehouse 
in Uji, a Kyoto suburb. 

Gunpei Yokoi had grown up in Kyoto, where his father was the 
director of a pharmaceutical company. He graduated from college 
with a degree in electronics and then made the rounds of Kyoto 
companies, filling out applications. The short, solid, and unpreten- 
tious man who wore gray-lensed glasses was hired by Nintendo to 
maintain the assembly-line machines that made the playing and 
hanafuda cards. Yokoi was the entire maintenance department for 
several months before Hiroshi Yamauchi called him into his office. 

Yokoi sat down in a large chair opposite the chairman's desk and 
folded his hands on his lap. Imanishi was already there, drinking 
coffee. Yokoi listened intently as Yamauchi assigned him to a new 
project in the newly founded Games division. He was to work 
under Hiroshi Imanishi to create a department for komuki — engi- 
neering — and make something for Nintendo to sell for Christmas. 

"What should I make?" Yokoi asked. 

Yamauchi said, "Something great." 



GAME OVER 



Yokoi was the first of many weekend tinkerers hired by Nin- 
tendo, the sort of hobbyists who made toys, radios, and other 
mechanical gadgets from spare parts. For his own amusement, he 
had recently invented a wooden latticework connected by bolts and 
with a vice-grip device on one end. When the two leaves of the 
handle were pushed together, the crisscrossed pieces extended and 
the grip on the end closed. The gadget had practical, but mostly 
whimsical, uses as a groping, clasping extension of the hand. 

The day after their meeting, Yokoi demonstrated his contrap- 
tion for Yamauchi and Imanishi. It brought a trace of a smile to the 
chairman's face. He gave the go-ahead and assigned Imanishi and 
Yokoi to begin production of Nintendo's first toy, the Ultra Hand. 
Advertised on television, 1.2 million units of the novelty were sold, 
at about 800 yen (roughly $6 in 1970) each. For Nintendo in those 
days, it was a resounding success. 

From then on, Yokoi's job was to come up with inventions and 
show them to the chairman. Yamauchi, although he had no engi- 
neering background, had an uncanny sense about products. He 
gave Yokoi suggestions and challenged the young man to improve 
his designs. Yamauchi, Yokoi says, instinctively knew if a new idea 
would sell. The chairman never sought a second opinion. If he 
liked it, he instructed Imanishi to begin production. 

Yokoi's inventions resulted in Nintendo's Ultra series of toys. 
The Ultra Machine was a pitching machine that lobbed a lighter 
version of a baseball (that could be batted safely indoors). Seven 
hundred thousand units sold each year for three years through 
1973. Somewhat less successful was the Ultra Scope, a periscope- 
like device with a lens that automatically refocused so that kids 
could see around corners, over fences, or behind them. It allowed 
kids to spy on each other, on their neighbors, or, often, on their 
parents. "It was a time of great fun," Yokoi recalls. "I saw myself as 
a cartoonist who understood movements in the world and created 
abstractions of them." 

In the evenings, Yokoi dabbled with wires and oscilloscopes and 
various other electronic components and applied some of his ex- 
periments to a device called the Love Tester. Yamauchi loved it. A 
boy and girl grabbed on to the handles of the tester and then 
joined their free hands. A meter read the current passing through 



IN HEAVEN'S HANDS 23 

them and determined, with scientific inaccuracy, how much "love" 
they had between them. The true objective of the device had noth- 
ing to do with science and everything to do with holding hands in a 
culture in which holding hands was still pretty risque. Yokoi noted 
that in America or Europe a love tester would have had to involve 
kissing. In Japan, however, a device that inspired hand holding was 
tantalizing enough to become a hit. 

Yokoi's R&D department grew with a steady addition of young 
engineers. Yamauchi pushed them with his emphatic praise and 
scorn. He never pretended to want to foster a sense of team play; 
rather, he openly pitted them against each other. While many 
Japanese companies grew because of loyalty to the group and the 
corporate good, Nintendo grew because of its engineers' (and its 
other employees') desire to please Yamauchi. "We lived for his 
praise," one engineer says. 

The next major Nintendo product, pivotal to positioning the 
company for its future success, came to the company by chance. 
Masayuki Uemura, with thick, wiry hair pushed to one side and an 
irrepressible ear-to-ear grin, arrived at Nintendo one day and re- 
quested a meeting with Gunpei Yokoi. 

Born in 1943 in austere and beautiful Nara, Uemura had moved 
to Kyoto with his family to escape the wartime bombing, Kyoto 
then being one of the safest of Japanese cities. His father had sold 
kimonos but struggled to make a living (he eventually opened a 
record shop in Osaka). When Uemura was a child, his family's 
straitened finances meant he had to use his imagination to invent 
toys and games for himself. Masayuki learned to make radio- 
controlled airplanes from parts he found in junk piles. His desire 
to create more sophisticated devices led him to work his way 
through an industrial college, where he trained as an electronics 
technician. 

By the time he graduated, Uemura could do far more than build 
toys, and he found a good job with an electronics manufacturer, 
Sharp, selling optical semiconductors used in the solar cells that 
might be used to power a lighthouse, or a robot that measured the 
amount of rainfall on the top of mountains. 

The head of Sharp's Kyoto office sent Uemura on a routine sales 
call to Nintendo to see if he could drum up some business for the 



24 GAME OVER 

solar cells. The visit coincided with Yamauchi's most recent man- 
date — for Yokoi and his engineers to investigate electronic toys 
beyond the Love Tester. In a meeting, Yokoi and Uemura con- 
cluded that the Sharp cell had some interesting applications for 
entertainment products. Shortly afterward, Yokoi hired Uemura 
away from Sharp. 

The young engineer was happy to leave sales, but he was even 
more thrilled to join Nintendo and return to what he had done for 
fun as a child: make toys. "There was something different about 
Nintendo," Uemura found. "Here were these very serious men 
thinking about the content of play. Other companies were import- 
ing ideas from America and adapting them to the Japanese mar- 
ket, only making them cheaper and smaller. But Nintendo was 
interested in original ideas." 

When Yokoi saw the Sharp solar-cell battery, he envisioned a 
unique way to put it to use. He and Uemura experimented. Large 
solar cells, about the size of a silver dollar, were being used to 
collect and convert light into electricity. But a much smaller cell 
could be used as a sensor to detect light. Yokoi's idea was to adapt 
the technology to a shooting game, using solar cells as targets. 

Yokoi and Uemura worked on a light gun that could be pro- 
duced cheaply enough for the consumer market. The "bullet" 
would be a thin beam of light. If the beam hit a tiny solar cell, the 
cell would either produce or cut off a charge, depending on the 
circuitry. For instance, the electricity to a magnet could be turned 
off so that a spring-loaded target could be let loose — and a plastic 
bottle of beer, pieced together as if it were a puzzle, could be made 
to explode. A lion could roar. A stack of toy barrels could be blown 
apart. 

Packed with light-triggered targets (the lion, the beer bottle, and 
the like), more than 1 million Nintendo Beam Gun games were 
sold for between 4,000 and 5,000 yen ($30 or so) in the early 1970s. 
Nintendo Co., Ltd., by then listed in the first section of the Osaka 
Stock Exchange, grew rapidly. 

Now the company needed more space to keep up with the de- 
mand for its new products, so Yamauchi expanded once again. To 
build the new headquarters, Yamauchi bought out neighbors and a 
vacant lot alongside the company's older cement building, which 



IN HEAVEN'S HANDS 25 



was retained as the hanafuda factory. (Yamauchi kept the business 
going essentially for nostalgia's sake: cards were representing a 
rapidly diminishing portion of Nintendo's business.) The old build- 
ing, whose front lawn held a few scattered trees, was dwarfed by 
the new structures (eventually three were constructed), which were 
high-tech slick: three floors, industrial white, huge rectangular 
slabs. A crisp blue Nintendo sign in both kanji and roman charac- 
ters could be seen by passengers on commuter trains and from the 
nearby hillsides, even from the gardens of the nearby Tofuku-ji 
Temple. A guardhouse was built, and blue-suited guards from the 
Kansai security firm were posted, day and night, out front. 

Beam Guns were still flying off store shelves when Yokoi sug- 
gested to Yamauchi that the same technology could be used in 
other ways. At the time, skeet shooting was a popular sport in 
Japan. On a whim, Yokoi had bought a rifle and went to a range to 
try it. When he returned, he told Yamauchi that the technology in 
the light gun could work in a system that would replicate the 
experience of shooting clay pigeons. 

Yamauchi absorbed the information and came up with a com- 
mercial application for it. There had been a bowling boom in Ja- 
pan in the 1960s. Alleys sprang up all over the country. Since then, 
enthusiasm for bowling had waned and many alleys were closed 
down. Yamauchi decided they could be acquired very advanta- 
geously and easily transformed into "shooting ranges." Simulated 
clay pigeons would appear at the end of a lane. A solar cell would 
detect when a hit was made and tally it on an electronic 
scoreboard. There was nothing like it anywhere. It would be the 
closest to real shooting most people would ever get, far more 
realistic than the amusement-park shooting ranges, where cork 
bullets sailed off course with the slightest wind. 

The technology, however, was still a bit tricky. Yokoi, who was 
told to get the system up and running, encountered a series of 
problems, from the operation of moving (or apparently moving) 
solar collectors to the coordination of the timing of a shot with the 
sound of its report. 

Another engineer who had joined Nintendo was assigned to 
work with Uemura. The young man, Genyo Tkkeda, had re- 



GAME OVER 



sponded to a newspaper want ad for a toy designer. When he saw 
the ad, he says, "some inspiration entered me." 

Takeda, who wore a polyester trench coat even indoors in mid- 
summer, was a colorful addition to the R&D division. Born and 
raised in Osaka, the son of the president of a fabric-design com- 
pany, he had graduated in 1970 from Shizuoka Governmental Uni- 
versity on Honshu, where his studies often took a backseat to his 
involvement in the student movement. In school, Takeda studied 
semiconductors, but for fun he built miniature locomotives and 
airplanes. When Gunpei Yokoi interviewed him, he realized that 
Takeda would easily fit into his growing engineering team. He put 
Takeda to work with Uemura on Yamauchi's shooting-range proj- 
ect. 

The press showed up to document the grand opening of the 
world's first Laser Clay Range in Kyoto in 1973. Just as a television 
news crew was getting ready, its cameras rolling, the light-shooting 
laser gun malfunctioned. Before anyone realized there was a prob- 
lem, Takeda climbed into the box behind the targets and, keeping 
himself hidden, shot clay pigeons off manually, and then kicked 
the controller, which lit up the targets that were supposedly hit. As 
far as the television audience knew, the ranges were running 
smoothly. They were packed from the first day they opened their 
doors to the public. 

Nintendo's Laser Clay Ranges became the hip spot for an eve- 
ning's entertainment in many Japanese cities, and soon there were 
variations on the original theme. In 1974 came "Wild Gunman." A 
16-mm movie projector showed actual film footage of a "homicidal 
maniac" on a screen at the end of an alley. If the player blasted the 
wild gunman before he fired, the sensor on the screen detected it 
and the player scored. The image-projection-system games were 
sold to a trading company, which exported them to America and 
Europe. 

The laser-gun ranges were going full tilt, but Japan had been hit 
by the world's first oil shortage in 1973; the country's economy 
went into a tailspin and, as it began to affect discretionary spend- 
ing, the shooting galleries were soon empty. Orders from abroad 
were canceled and outstanding bills went unpaid. Nintendo's in- 
vestment in the venture had been so great that the company was 



IN HEAVEN'S HANDS 2 7 

suddenly on the brink of collapse. Yamauchi was more desperate 
than ever for a breakthrough product. 

The idea came from a boyhood friend of Yamauchi. The man 
had become an executive with one of Japan's largest electronics 
conglomerates. Over dinner one night in 1975, the talk was all 
about the latest technological breakthroughs in the electronics in- 
dustry, primarily the importance of semiconductors and micropro- 
cessors. Yamauchi's interest was piqued when he realized that 
these technologies, as part of a revolution in office and consumer 
products, were becoming cheap enough to utilize in entertainment 
products. He researched the first traces of an industry that was 
emerging in America. Companies such as Atari and Magnavox 
were selling devices that played electronic games on home televi- 
sion sets. 

Yamauchi negotiated a license to manufacture and sell 
Magnavox's video-game system in Japan. The machine played vari- 
ations on the first commercial American video game, "Pong." A 
beam of light was batted back and forth between paddles that the 
players controlled. With plastic overlays affixed to the front of a 
TV screen, the light could be a football, a tennis ball, a soccer ball, 
or one of several other kinds of simple games. 

Nintendo's operation wasn't sophisticated enough to develop 
and manufacture the microprocessor-based circuit boards that 
were the heart of the game system, so Masayuki Uemura suggested 
an alliance with an electronics firm. Nintendo teamed with Mitsu- 
bishi to build the video-game system and, in 1977, Nintendo en- 
tered the home market in Japan with the dramatic unveiling of 
Color TV Game 6, which played six versions of light tennis. It was 
followed by a more powerful sequel, Color TV Game 15. A million 
units of each were sold. The engineering team also came up with 
systems that played a more complex game, called "Blockbuster," 
as well as a racing game. Half a million units of these were sold. 
Nintendo had quietly entered the world of audio-visual entertain- 
ment and consumer electronics. 

The successful TV game systems allowed Nintendo to tread wa- 
ter a while longer, but they were neither novel enough nor versatile 
enough to be the revolutionary product Yamauchi was searching 
for. He kept the pressure on his engineers, directing them to ex- 



28 GAME OVER 



plore new ways of making video games. "We must look in different 
directions," Yamauchi said. "Throw away all your old ideas in 
order to come up with something new." 

The electronic-calculator market was then booming. There were 
so many types available that the prices were shrinking almost as 
fast as their size — credit-card-size calculators were selling for a 
thousand yen, under $10. What else could be done with that minia- 
turized technology? "The Nintendo way of adapting technology is 
not to look for the state of the art but to utilize mature technology 
that can be mass-produced cheaply," says Gunpei Yokoi. He 
sought to make something smaller, thinner, and lighter than any- 
thing ever seen — something that was also fun. 

It turned out to be Game & Watch, a video game the size of a 
calculator, with a tiny digital clock in the corner. With his engi- 
neers, he chose components from Uemura's old company, Sharp, 
and developed the smallest computer games ever seen. They 
weren't the easiest things to play — the controls were tiny — but they 
were a novelty. Nintendo shipped them all over the world by the 
tens, and then hundreds, of thousands. Many of the Game & 
Watches in circulation were illegal bootlegs — Nintendo lost poten- 
tial millions because of all the non-Nintendo units made in various 
Asian cities — but the company nevertheless made many millions 
from the phenomenal number of Game & Watches they sold. 

While Yokoi was "thinking small," Yamauchi had other engi- 
neers thinking big. After "Wild Gunman" and his first taste of the 
arcade business, he wanted more of the 100-yen pieces (and quar- 
ters) that were pouring into video games from the pockets of teen- 
agers around the world. Popular games such as "Space Invaders" 
were behind a boom in the coin-op video-game business. 
Yamauchi wanted Nintendo to become a major player in arcades, 
and so his team came up with games like "Hellfire," "Sheriff," 
"Sky Skipper," and a battle game called "Radarscope." 

Yamauchi, meanwhile, held endless meetings at Nintendo's 
growing R&D center with a group of designers under Masayuki 
Uemura. Uemura's team was working on what was emerging as the 
most significant new venture for Nintendo. It was a video-game 
system, but one that was much more sophisticated than Color TV 
Game 6 and 15. In America, systems had been released that played 



IN HEAVEN'S HANDS 29 

many games on interchangeable cartridges. The technology in- 
sured that the system would never become "old and stale," as 
Yamauchi put it — as long as "new and interesting" games would be 
available for it. 

As Yamauchi learned about the technology — knowledge gained 
from late-night talks with Uemura and other engineers — he real- 
ized that the machine under development could do far more than 
just play games. "He had no concept that he was building a com- 
puter, but he nonetheless had his first glimpse of the incredible 
potential of a home-computer system disguised as a toy," says 
Uemura. "He saw far more than he let on to us." In the short term, 
Yamauchi saw a system that could be the basis of a profoundly 
expanded company if kids loved it enough and if they wanted more 
and more games to play on it and if Nintendo was the only maker 
of all those games. 

There were many obstacles, including a number of competitors 
in the field. By 1983, systems had already been released in Japan by 
companies from the United States (the Atari 2600 and Commo- 
dore Max Machine) and from Japan (Epoch's Cassette Vision, 
Bandai's Intellivision, Takara's Game Personal Computer M5, 
Tomy's Pyuta, and Casio's and Sharp's small game-playing com- 
puter, the MSX). Yamauchi told Uemura he must "develop some- 
thing that other companies cannot copy for at least one year. It 
must be so much better that there will be no question which system 
the customers will want." 

For Uemura, the greatest challenge was not the technology; 
price was the crucial factor. Yamauchi wanted the system in many, 
many homes, so it had to be cheap enough so that almost everyone 
could buy it. All the machines currently on the market, except for 
the Epoch system, were selling for 30,000 to 50,000 yen ($200 to 
$350). Yamauchi set a goal of 9,800 yen, less than $75. At the same 
time, the system had to do what other systems, whether Japanese 
or American, could do, but more and better. 

Uemura examined the competitors' machines. They were im- 
pressive in some ways. Built mostly by engineers with expertise in 
office computers, they could generate still pictures and alphanu- 
merics, as well as perform complex calculations. But game play, 
Uemura believed, had essentially different requirements. The 



GAME OVER 



movement of characters and backgrounds on the screen had to be 
far more active, more believable, than on the other systems; it 
would have to approach the quality of fast-speed animation. A 16- 
bit processor could have done it all with ease, but Nintendo would 
have to make do with a less powerful 8-bit processor if the price 
was going to be kept low. 

For ideas, Uemura picked the brains of the engineers who 
worked on Nintendo's arcade games. The arcade games had big- 
ger, more expensive processors, but Uemura was most interested 
in the thinking behind the games, not the hardware. For a coin- 
operated game to make money, players had to become immersed 
in it as soon as the first coin was inserted. Many senses had to be 
taken over almost instantly to make the game play "hot," to use 
Uemura's term. The entire consciousness of a player had to be 
captured. There seemed to be two keys to accomplishing this: fast 
action, or a combination of fast action and intellectual challenge. 
The headier stuff was up to the game designers, but fast action 
required complex and expensive circuitry. 

Uemura spent eighteen-hour days with the arcade engineers 
trying to determine the essence of the key components to the 
circuitry in the best coin-operated games. Only that essence could 
be carried over to the central processing unit of the new system. 
Finally he chose a relatively standard microprocessor called a 
6502, but the one low-cost chip couldn't power all the aspects of a 
complex video game. One chip could control the information re- 
quired for character movement and the interaction between the 
machine and the player, but if it had to do more than that, it would 
bog down. A second chip was needed to control the television 
screen itself — to generate bright colors, process pictures, and move 
them at a very high speed. 

Other companies' game machines used an integrated circuit 
made for old-model personal computers, Texas Instruments' 
T19918, which allowed six to eight colors. Nintendo's machine had 
to have more colors for the better graphics Uemura sought (it 
ended up with fifty-two colors). Uemura, together with his growing 
stable of engineers and programmers, slaved over calculations and 
experiments to determine the maximum number of sprites (similar 



IN HEAVEN'S HANDS 31 

to the dots of a television picture) that could be generated on the 
screen in almost no time. The first calculation gave a number that 
was unsatisfactory; more sprites were needed if game play was 
going to feel noticeably more realistic than on the competitors' 
machines. The circuitry was modified. More experiments were 
conducted to determine how big an object and how many objects 
could move at a time, and how many changing functions could be 
built into one semiconductor. "We had to accomplish this exactly," 
Uemura says. "It was the order from the president. So much was 
riding on these experiments." 

Nintendo's engineers could take the design of the two key chips 
only so far. They had to get the expertise of an outside company. 

To determine who that would be, Uemura and Yokoi met with 
semiconductor-company representatives. It had been determined 
that the two custom chips that were needed were the basic central 
processing unit (CPU) and the picture processing unit (PPU). A 
supplier had to be able to help design and then produce them both, 
Yamauchi insisted, for a rock-bottom price. 

It was not easy to be a supplier for Nintendo. The company's 
demands were rigid and exacting. Designs would change overnight 
and suppliers would have to be ready to change specifications on 
demand. "The most important thing we looked for in a supplier 
was the brain to cope with us," Yokoi says. "Unfortunately, we 
found that most companies are not flexible. Most companies move 
too slowly. That was not acceptable." 

Given the prices Yamauchi would pay, the only way a partner- 
ship with Nintendo could pay off was in volume of sales — an enor- 
mous number of chips would have to be sold. Many major 
companies wouldn't gamble on Nintendo. "Now they wish they 
had," Uemura says. 

Uemura went to Ricoh, the electronics giant, with his prelimi- 
nary circuit diagrams. The chips he needed, he said, had to cost no 
more than 2,000 yen, which is why they had been scaled down to 
perform only essential functions. It happened to be a slow time for 
Ricoh's semiconductor division, so the company was willing to 
work with Nintendo, but they regarded the 2,000-yen price point as 
absurd. 



32 GAME OVER 



Yamauchi was informed of Ricoh's stand and he made a pro- 
posal. "Guarantee them a three-million-chip order within two 
years," he said. "They will give us the price then." 

Others inside Nintendo thought Yamauchi's tack was preposter- 
ous; leading manufacturers in Japan were selling 20,000 to 30,000 
video-game systems, and the most Nintendo had ever sold of the 
TV Game 6 and 15 was 1 million. There was no way they would 
ever use anywhere near 3 million chips. 

Yamauchi demanded that the proposal be made, and as he ex- 
pected, Ricoh agreed. When an agreement was signed by Uemura 
and approved by Yamauchi, the head of Ricoh's five-man team in 
charge of the Nintendo project remarked politely that he was look- 
ing forward to bringing the new Nintendo system home to his 
children. He accomplished more than that: by the end of 1986, 
Nintendo would become Ricoh's largest customer, representing 60 
to 70 percent of the company's semiconductor division's sales. 

Ricoh was not Nintendo's only supplier. The larger companies 
that worked with Nintendo included Sharp, Mitsumi, Fuji, and 
Hoshi. There were, eventually, thirty subcontractors. Contracts 
with Nintendo would become among the most lucrative in the 
semiconductor and electronics industries. Ricoh and Sharp would 
form divisions that did nothing but supply Nintendo. 

Keeping Hiroshi Yamauchi and his company happy, suppliers 
found, was difficult: Yamauchi insisted on lower defect rates than 
any other customer. But it was also rewarding. A 1991-92 survey 
indicated that Nintendo was spending $1 billion on semiconduc- 
tors each year. 

As development of the new video-game system continued, the 
engineers brought some of their questions to Yamauchi. What had 
to be included in the game console? Since the system was actually 
a small computer, it could have all the extras that computers could 
have. Should there be a disk drive which could read and write 
information? Should it have a keyboard? Should it have a data 
port, through which information could be sent and received to the 
system? The system could have a modem that would hook up, via 
telephone lines, to other game players or a central Nintendo termi- 



IN HEAVEN'S HANDS 33 



nal. It could have large amounts of memory that would accommo- 
date more complicated programs. 

Yamauchi was looking far down the road when he cautiously 
answered the engineers' questions. Although he eliminated any- 
thing that would add too much cost, he built in future expansion 
that went far beyond video games. 

In the Japanese edition of The Japan That Can Say No, the 
book's coauthor (with Shintaro Ishihara), Sony's founder and 
chairman, Akio Morita, slaps American corporate wrists for short- 
sightedness. "We Japanese plan and develop our business strate- 
gies ten years ahead of time," he wrote. When he asked an 
American businessman if U.S. companies plan so much as a week 
ahead of time, he was told, "No, ten minutes." Nowhere is the 
repercussion of that difference more obvious than in the game 
system Hiroshi Yamauchi created. It anticipated a future that 
would not be revealed for a decade but which had the potential to 
propel Nintendo into the forefront of electronics and entertain- 
ment companies. 

Yamauchi instructed Uemura to leave off the frills. No keyboard 
— it might scare off customers. No modem or disk drive. The sys- 
tem would play games on cartridges, not disks. Floppy disks were 
threatening to computerphobes and, more important, they were 
copiable. 

The system would have minimum memory, since memory was so 
expensive, but it would have more than its competitors'. Atari's 
system had 256 bytes of RAM (random access memory, the 
amount of instructions a central processing unit can refer to at one 
time); the Nintendo system would have 2,000 bytes of RAM. In 
addition, games for the new Nintendo machine could be far more 
complex than the most powerful Atari games; a Nintendo cartridge 
could contain thirty-two times more computer code than an Atari 
cartridge. 

Yamauchi cut out all extraneous devices to save money, but he 
told the engineers to include, for a trivial added cost, circuitry and 
a connector that could send or receive an unmodified signal to the 
central processor. The connector could pave the way for expansion 
— the addition of anything from a modem to a keyboard. It was 



GAME OVER 



why the machine would later be called Yamauchi's Trojan Horse: It 
slipped into living rooms with nothing but a pair of controllers, 
innocently toylike, yet it included the capability to do far more 
than play games. Nintendo boasted about it much later. "In the 
initial stages of [the system's] development, we foresaw these pos- 
sibilities," reads a 1989 corporate report. "As such, we built a data 
communications function into the system and provided it with a 
connection terminal for an adaptor." Uemura modestly says that 
the plan worked so well because "we were lucky." But Genyo 
Takeda, a friend of Uemura, says, "He was so much an amateur 
that when Yamauchi told him to make this thing, he didn't know 
that it could not be done." 

There were more practical and aesthetic decisions along the 
way. Steve Jobs's obsession to design the perfect mouse for the 
original Macintosh was no greater than Yamauchi's attention to 
the details of the controllers. Should there be one or two or more 
buttons? Should the system's casing have round or square edges? 
What color should the system be — a computer-like gray or beige, 
or a more playful color? Should the system box look more like a 
computer or a toy? (The answers they came up with were: two 
buttons on the right controller plus a directional pad and, on the 
left controller, a simple microphone through which one could 
"talk" to the system; softer, less threatening, rounded edges; and 
red and white plastic, to make the unit as toylike as possible.) 

The year 1983 was a significant one for Nintendo. Yamauchi had 
the new Uji plant expanded to increase the company's production 
capacity. His stock became listed in the most respected first tier of 
the Tokyo Stock Exchange. And he began selling the system his 
men, after months of marathon work, shrouded in secrecy, had 
created. 

The system was selling for more than Yamauchi had planned 
(about $100), but it was still less than half the price of the competi- 
tion. In May, he addressed the Shoshin-kai Group, a wholesalers' 
group. He conceded that his new video-game player was priced so 
low that wholesalers wouldn't make much profit on it. "But," he 
said, "I guarantee that it will sell a lot because of the great games." 
He implored them to back the machine in spite of the low margin. 
"Forgo the big profits on the hardware," he said, "because it is 



IN HEAVEN'S HANDS 



really just a tool to sell software. That is where we shall make our 
money." At the meeting, Yamauchi announced the name of his 
new system. Here, he said, was Japan's first Family Computer. He 
dubbed it, for short, the Famicom. 

Pushed by a barrage of advertising, 500,000 Famicoms flew off 
the shelves in the first two months. Six months later, however, a 
catastrophe occurred before the Japanese New Year, the toy in- 
dustry's busiest season. There were at first a few calls from retail- 
ers. Then a few more. Masayuki Uemura and Gunpei Yokoi were 
called into Yamauchi's office. They were told that certain games 
for the Famicom caused the system to freeze. 

The engineers nervously returned to their labs and worked on 
replicating the malfunction. Finally, there it was, trouble with one 
of the integrated circuits that got locked when certain information 
traveled on certain pathways, like a multicar pile-up on a badly 
designed freeway. 

They trudged back to Yamauchi's office and explained the prob- 
lem and the required solution. The circuitry on the chip had to be 
corrected. They expected Yamauchi to go into an explosive tirade. 
This was extremely expensive news. 

Yokoi suggested that the company could replace units when 
customers complained. Hiroshi Imanishi, who was working on the 
marketing of the new machine, said that the problem could be 
more severe than whatever number of units had the defective 
chips; it could cost more than the hundreds of thousands, maybe 
millions, it would cost to fix or replace machines. Imanishi said it 
would hurt customers' opinion of Nintendo. Worse, much of 
Yamauchi's window of a year — the year that it would take competi- 
tors to try to copy the Nintendo machine and get it out the door — 
would be lost. A delay would allow competitors to swoop in and 
capture the customers that Nintendo had worked so hard, and 
spent so much money, to win. 

Yamauchi listened to the opinions of his staff but ignored them. 
"Recall them all," he said. 

Systems in stores and warehouses were pulled off the shelves, 
returned to the plant in Uji, and retooled (the bad chips replaced). 
In the end, Nintendo lost millions of dollars by missing the prime 
sales season, but Yamauchi's gamble paid off. 



GAME OVER 



After the first million Famicom systems had been sold, there was 
still no sign of a slowdown. Once several million families had a 
Famicom and desperately wanted games, Nintendo could sell all it 
could produce. Yamauchi saw how Nintendo's emphasis would 
conceivably switch from hardware, with its limited market, to soft- 
ware, whose market was without limits. 

Desperate retailers called Nintendo, frantically demanding 
product. New games were anticipated with a fervor that shocked 
store owners, distributors, and parents. Kids camped out in front 
of department stores and toy shops to snap up copies before the 
games sold out. Nintendomania was beginning, and Yamauchi, 
raking in more money than he had ever seen before, couldn't feed 
the frenzy quickly enough. 

The success of the Famicom was unprecedented. Eventually, the 
fourteen competing home video-game machine companies with- 
drew from the market. The MSX was put in its place as a personal 
computer, not a game machine. Sega, a small arcade-game com- 
pany, released a competitor called the SG-1000 the same year 
Nintendo released the Famicom, but it fizzled. And in spite of 
updated systems released by Atari, Nintendo had no competition 
to speak of. What had begun as the Yamauchi family business was 
inconspicuously on its way to becoming one of the most successful 
enterprises in the history of Japan — or, indeed, the world. 



\ 



\ 3 

I, MARIO \^ J 



"What if you walk along and everything that you see is more than what you see — 
the person in the T-shirt and slacks is a warrior, the space that appears empty is a 
secret door to an alternate world? What if, on a crowded street, you look up and 
see something appear that should not, given what we know, be there? You either 
shake your head and dismiss it or you accept that there is much more to the world 
than we think. Perhaps it really is a doorway to another place. If you choose to go 
inside you might find many unexpected things." 

— Sigeru Miyamoto 



Yamauchi's Famicoms were selling as fast as Nintendo built them. 
The success brought with it an unexpected, although not unwel- 
come, problem. A video-game system, like any other computer, 
could be elegant and powerful, yet it was only as useful as the 
software it showcased. The Famicom could have been as powerful 
as a mainframe computer, but no one would have noticed if the 
games were ordinary. Now the problem was that there were not 
enough good games. 

Yamauchi had wisely anticipated the importance of software and 
prepared for it. One of the instructions he had issued to Uemura 
was that the Famicom must "be appreciated by software engi- 
neers." It had to be easy to program and able to do the kinds of 
things that game designers dreamed of doing. Any company, given 
the time, could copy the Famicom hardware. The key to staying 
ahead was software. By the time a competitor came out with a 



3B GAME OVER 

game that was as good as a successful Nintendo game, Nintendo 
had to be releasing a game that left the others in the dust. 

Nintendo would, Yamauchi decided, become a haven for video- 
game artists, for it was artists, not technicians, who made 
great games. "An ordinary man," Yamauchi said, "cannot develop 
good games no matter how hard he tries. A handful of people in 
this world can develop games that everybody wants. Those are the 
people we want at Nintendo." He was interested only in the one 
genius, as he put it, who would drive Nintendo. He wanted to turn 
Nintendo into the single place the hottest game designers wanted 
to be associated with. Since, in Japan, most employees stayed with 
one company for their entire career, it was generally impossible to 
seduce good designers from other companies. That meant that 
they would have to come to Nintendo on their own, fresh from 
college. 

Yamauchi wanted to create a place where his geniuses would be 
encouraged and inspired. But how? He was used to badgering and 
cajoling, or simply demanding — and that was certainly not the 
same thing as inspiring people, nurturing them. His reputation for 
aloofness and cockiness had grown with Nintendo. He luxuriated 
in his position as the merciless Goliath of his industry. He was 
already infamous for squashing people — or companies — that 
crossed him. He made up his own rules as he went along and he 
refused to play politics (which enraged government officials, who 
were used to being catered to). But could he inspire! "Research 
and development is the most difficult department to control," he 
observed. "It is difficult to control artists because they do not want 
to compromise." 

The chairman had no engineering background, but he discov- 
ered how to stimulate innovative design. Isolated from the rest of 
Japan's industrial hubs in Osaka and Nagoya, and from the finan- 
cial capital of Tokyo, Yamauchi ignored the textbook corporate 
examples. He had hand-picked his three chief engineers — Yokoi, 
Uemura, and Takeda — a long time ago, and they had done good 
work for him. In order to push them (and to learn more about how 
the engineers and designers worked), in 1984 Yamauchi made him- 
self the supervisor of all R&D at Nintendo, "the heart of this 



I. MARIO 39 

company." He supported them with significantly more staff and 
resources. 

Yamauchi arrayed his chiefs directly below him, each of them in 
charge of his own group: R&D 1, 2, and 3. Within an R&D group 
were many teams, which were pitted against each other. The teams 
in the groups working mostly on hardware tried to outdo the oth- 
ers in the virtual miracles they came up with, and the software 
teams competed to make the greatest games that had ever been 
seen. 

Yamauchi has never played a video game in his life and he had 
little interest in them. Still, he alone was the judge and jury when it 
came to deciding which games Nintendo would release. It was 
audacious, and he was either remarkably intuitive or terrifically 
lucky. Yamauchi was criticized for being ruthless when it came to 
many of his business practices — manipulating the market, terror- 
izing employees — but no one questioned his genius when it came 
to choosing Famicom games. A Nintendo manager criticized 
Yamauchi for his obstinacy but praised his instinct: "It's like a 
sense for the fashion business, knowing what will become hot and 
popular next season. He can read a few years in advance. He is so 
certain that he is right that he listens to no one." 

His R&D groups competed among themselves for Yamauchi's 
attention and praise, but there was no doubt about their collective 
place in the company. They were his stars. While most companies 
directed input from market research and from their sales force to 
their R&D sections, Yamauchi in those days insisted that R&D 
was sacrosanct: no one told his creative people what to create. The 
marketing department saw games only when they were completed. 
"He believes the marketing people will only look at what's popular 
right now," Hiroshi Imanishi says. "And if we make the game 
based on what's popular right now, the game will not be new and 
fresh." 

The personal attention their leader lavished on his inventors was 
a mixed blessing. A nod from Yamauchi could make a designer's 
day — or week, or month. Engineers were ecstatic when they came 
up with a game that delighted him. On the other hand, an admon- 
ishment could be devastating. "Months of work can be disposed of 



40 GAME OVER 



with a scowl," says an engineer who left Nintendo. The project is 
dead, instantly. His victims suggested that Yamauchi's judgments 
were capricious or the product of his moods, and that his callous- 
ness caused a great deal of frustration and anger. Engineers occa- 
sionally left, and others, exhausted and disappointed, were sent on 
sabbatical. They were told, "The company is making money; don't 
worry. Spend the time, relax. Come back fresh." Most commonly, 
designers whose work was rejected would only redouble their ef- 
forts, determined to have their game chosen the next time. 
Yamauchi's autocratic, often brutal system worked. 

The R&D groups worked in spacious, private laboratories in the 
development wing of the main Nintendo building. In these white- 
walled, white-ceilinged rooms, rows of computer monitors were set 
up on tables. Their screens shone with blow-ups of circuit boards 
that looked like magnified city maps. Other screens, stacked as if in 
a television showroom, displayed details of game characters — the 
left cartoon hand of a boxer, for example. Still other screens were 
filled with column after column of fluorescent, sallow-yellow 
numerals. 

Here and there were drafting tables, covered with schematic 
blueprints for games or scribbled calculations. Laser printers, 
networked to dozens of terminals, spewed book-length programs, 
and Xerox machines churned out copies of sectional drawings of 
game worlds. 

In the design rooms, the men (no women) worked methodically 
as they competed to make products that would become the prod- 
uct. The goal was excellence — anything less would wind up on the 
scrap heap. Yamauchi believed that it was far better to put all his 
resources into the production of one or two hit games a year rather 
than several minor successes. When he released new games, he 
only had to manufacture, package, market, and advertise those 
few, but that meant that the stakes for each Nintendo game were 
extremely high. The games had to warrant all the costs of develop- 
ment (up to $1 million per game) and marketing (up to several 
million more). 

The high stakes meant there wasn't always wa (harmony) within 
the company. Yet in spite of the competitiveness, the three chief 



I, MARIO 4 1 

designers respected each other and, when they were called on to 
do so, worked together well. Part of the reason the competition 
didn't turn them against one another was that Yamauchi parceled 
out his praise. On the other hand, if any one team had too much 
success, it could be expected to be slapped down. The result was 
that each team came to excel in different areas and at different 
moments. In the end it was difficult if not impossible to determine 
which of the three design teams contributed more to Nintendo's 
growth. 

Takeda says Yokoi, his mentor, was "the sharpest designer." 
Besides all the work they had done for Yamauchi in the past, 
Yokoi's R&D 1 designed Game Boy, which would become another 
extraordinary Nintendo success. His team of thirty engineers were 
"a band of samurai," says a colleague outside of Japan. They oper- 
ated quietly, with less recognition than the others. Their leader was 
nazonoyona, an enigma. 

Yokoi was the oldest of the top engineers (though still only in his 
forties) and the most like traditional, old-school engineers at other 
companies throughout Japan. He wore simple short-sleeved shirts, 
and his hair was cut so that there was a neat, clean line around his 
ears and neck. He was dedicated to the company over everything 
else; he was a Nintendo man. 

The games from R&D 1 would be some of Nintendo's best. One 
was the phenomenal game "Metroid." In the video-game world of 
macho stereotypes, the game's hero was a surprise. Samus, the 
warrior, on the quest to destroy the Mother Brain, went to battle 
with a nifty array of weapons and slick moves, dressed in a space 
suit and helmet. At the end of the game, after the Mother Brain 
died a screaming, light-spewing death, Samus could finally relax 
and take off his helmet. Long blond hair fell out. Samus, the great 
warrior, was a woman. 

The greatest contribution of Uemura's team, R&D 2, was the 
Nintendo hardware itself. R&D 2 also came up with peripherals, 
including the Communications Adapter for the Nintendo Net- 
work. Sixty-five people worked with Uemura, whose face wore a 
constant expression of astonishment. He spoke in a raspy, hushed 
tone — Tom Waits after a few bourbons — as if what he had to 



GAME OVER 



say was clandestine and dangerous, which it sometimes was. 
(Yamauchi had tapped Uemura's team for a top-secret project that 
was kept under wraps for years.) 

Takeda ran R&D 3, which would design games such as "Star 
Tropics." More significant, however, was some of the technical 
magic the team performed. R&D 3 came up with technology that 
allowed the other groups to make games that the original Famicom 
hardware could never have powered on its own. The first Famicom 
cartridges used what were called NROM chips (N for Nintendo 
and ROM for Read Only Memory). Unlike computer programs on 
floppy or hard disks, these programs were not changeable. A game 
program was reproduced onto an actual integrated microcircuit. 
Using a photographic process, the circuit was duplicated onto thin 
silicon wafers that were sandwiched together and attached to con- 
nectors. Through them the information — the game program — was 
transmitted to other components in the system. The amount of 
information in a game was limited by the size of the ROM. 

Each game cartridge had two main chips, one for the program 
itself, which could be up to 256K (kilobytes) and one for the on- 
screen characters, which could be 64K. Programs for games and 
characters had to fit within those chips until R&D 3 designed new 
kinds of cartridges. 

R&D 3 created a cartridge called UNROM, which allowed 
greater memory size and bank switching. A RAM (Random Access 
Memory) chip was a place to store information until it was needed 
by the computer's processor. Bank switching was a process for 
grabbing, from that stored information, whatever was needed 
whenever it was needed. A new game screen, complete with new 
kinds of enemies and waterfalls and creatures (and the programs 
to make them work) could be retrieved from RAM when the 
player arrived in that "room." 

There were still severe limits on the cartridges, however. The 
amount of information that could be switched was scant and the 
process was slow. Takeda's gang tackled the limits with new kinds 
of chips called MMCs (Memory Map Controllers). They made the 
system do things that the Famicom's 8-bit processor could never 
have approached on its own. Years after the Famicom was intro- 



I.MARIO -43 



duced, games seemed to get more and more complex. It was as if 
the old Apple II were suddenly powering HyperCard. Takeda's 
chips, by taking on some of the Famicom's processing power, es- 
sentially added RAM and other specific powers to the machine. 

The Famicom could do things it was never designed to do: im- 
ages could scroll diagonally, objects could move quicker, and far 
more could happen at one time. The system itself still had only 
2 kilobytes of RAM, but this was supplemented by the custom- 
designed sets of circuits with specialized functions in the MMCs. 
Some of the circuits, called Logic Gates, increased the speed and 
efficiency of the background computing that made everything hap- 
pen. Others directed the program to specific locations in the mem- 
ory, traffic cop style. They were smaller and cheaper than the chips 
in the UNROM, and they allowed larger program and character 
memory size. With the addition of the first MMC chip, the poten- 
tial for more complex and sophisticated games had arrived. The 
first examples were "The Legend of Zelda," "Metroid," and "Kid 
Icarus," three breakthrough games, all huge sellers. 

Subsequent MMC chips allowed the Famicom to do even more. 
With MMC3, the screen could split into two parts, each moving 
independently. With MMC5, there could be more images on the 
screen at a time. Unaided, the Famicom could project pictures of 
960 tiny square pieces, called tiles, but only 290 could be unique, 
which is why there were so many walls full of bricks or other 
repeated patterns in early games. MMC5 made it possible for all 
960 tiles to be different. It also processed math problems on its 
own, freeing up the main processor. Memory size for games with 
an MMC5 shot up to 8 megabytes, thirty-two times more than the 
original cartridges. 

R&D 3 also figured out a way to include a battery backup system 
in cartridges that allowed some games to store information inde- 
pendently—to keep track of where a player had left off, or to track 
high scores. The new battery system could store the data for the 
life of the battery (about five years). 

Takeda's group obsessed over the highly technical and the ob- 
scure. The fruits of their labors were dramatic — most of the best 
Nintendo games would not have been possible without them — but 



GAME OVER 



they were not always obvious. R&D 3, nicknamed "Rumania," was 
isolated from the other groups. Its motto was grand: "There are no 
limitations, no boundaries; since we are on our own, there is noth- 
ing we cannot do; when you start with nothing you can do every- 
thing." Their leader, with his quizzical glances under heavy arching 
eyebrows and his arcane, light-bulb brain, boasts, "We have to have 
more talented people because we are given unthinkable tasks." 

Takeda's twenty-person staff was a band of otaku — computer 
hackers and nerds. They were the consummate eggheads and 
dweebs. "Becoming maniacs," Takeda said, "is the idea." 

The three R&D groups were immersed in their respective proj- 
ects one day when Yamauchi required the talents of a designer. 
The project was not important enough for him to pull one of the 
key members from their work, so he called in the apprentice in the 
planning department. 

Sigeru Miyamoto remembers the maze of rooms in the paper- 
and-cedar home of his childhood. Sliding shoji screens opened up 
onto hallways, from which there seemed to be a medieval castle's 
supply of hidden rooms. The tiny home was in the countryside near 
Kyoto, in the town of Sonebe, where his parents and grandparents 
had been born before him. The surrounding landscape was 
Miyamoto's playground: he fished in the river, ran along the banks 
of sodden rice fields, and rolled down hillsides. 

Across the sand-and-stone street from his home was a rice field. 
After the yearly harvest, when the field was dry, it became a park 
for baseball and other games. He played there with neighborhood 
children in the afternoons, and in the evenings he attended Noh 
plays, heroic dance dramas, or puppet shows, or he gathered with 
his family at one of the neighbors' homes for festive dinners. 

The Miyamoto family had no television and no car. Every few 
months they traveled by train to Kyoto to shop and see movies: 
Peter Pan, Snow White. At home, Miyamoto lived in books, and he 
drew and painted and made elaborate puppets, which he presented 
in fanciful shows. After school, he often lit out into the countryside 
for adventure. He had to pass a neighbor's house where a bulldog 
lay in wait for him. The dog charged every time, barking and 
snapping, and Miyamoto froze. At the last second, the dog's chain 



I , MARIO 45 



reached its limit and jerked it back. Miyamoto stood just out of the 
reach of its salivating jaws. 

Investigating hillsides and creek beds and small canyons, 
Miyamoto once discovered the opening of a cave. He returned to it 
several times before he worked up the courage to go in. Lugging a 
homemade lantern, he went deep inside until he came to a small 
hole that led to another cave. Breathing deeply, his heart pound- 
ing, he climbed through. He never forgot the exhilaration he felt at 
this discovery. 

The family moved to Kyoto, where Miyamoto and his new 
friends had secret meetings in the family's attic at which codes and 
passwords were traded. There were dares to explore forbidden 
places— a neighbor's yard guarded by an Akita; another neighbor's 
basement, which held a treasure trove of trunks stuffed with an- 
cient costumes. 

Miyamoto wanted to be a performer, a puppeteer, or a painter 
when he grew up. He carried pads of paper and pencils and drew 
nature scenes in parks and along the river that divided the city. In 
school, while his teachers lectured, Miyamoto daydreamed. At 
night, he constructed plastic models and wood-and-metal contrap- 
tions until his father sent him to his room to study. Math and 
grammar were put aside for drawing. 

Miyamoto took cartoon-making seriously. He drew a figure and 
then invented its life and personality. The figures wound up in 
intricately drawn flip books. At school he organized a cartoon club 
that met regularly and had yearly exhibitions. 

In 1970, Miyamoto entered Kanazawa Munici College of Indus- 
trial Arts and Crafts. It took him five years to graduate because he 
only attended class about half the time. Instead of studying, he 
spent his time sketching in his notebooks and listening to records. 
He loved the Nitty Gritty Dirt Band, the Country Gentlemen, and 
David Grisman. He taught himself how to play the guitar— Ameri- 
can bluegrass music, of all things. It wasn't easy to find a banjo 
player in Kyoto, but he did, and the duo performed at coffeehouses 
and parties. His friends were artists and musicians. They hunted in 
record shops for hard-to-find (in Kyoto!) Kentucky Colonels LPs 
and traveled to Tokyo to see Doc Watson perform live. 

When he finally graduated, Miyamoto agonized over what kind 



GAME OVER 



of job he should get. He had no interest in traditional business, and 
he knew he would never survive the monotony of a rigidly struc- 
tured corporation. 

Then a revelation came to young Miyamoto. He asked his father 
to contact an old friend, Hiroshi Yamauchi, who ran Nintendo. 
The elder Miyamoto asked Yamauchi to meet with his son, a re- 
cent graduate with a degree in industrial design, who was looking 
for a job. "We need engineers, not painters," Yamauchi said, but 
he agreed to a meeting as a favor to his friend. 

Miyamoto was twenty-four in 1977, when he entered the office 
of the Nintendo chairman. He had shaggy hair, boyish freckles, 
and a cat-who-swallowed-the-canary smile. He dressed nicely, and 
he behaved in accordance with traditional etiquette, yet there was 
mischief and wonder in his eyes. Yamauchi liked the young man 
and asked him to return for another meeting, this time with some 
ideas for toys. 

Miyamoto returned with a portfolio and a large sack from which 
he produced a recent invention. It was a clothes hanger designed 
for children. Nursery schools could have a row of them along the 
wall, he explained. Or parents could put them in children's rooms. 
Regular metal hangers, he told Yamauchi, were dangerous for 
children; the pointed hook could hurt them, even poke out an eye. 
His hanger, carved out of soft wood and covered with cheerful 
acrylic paint, was in the shape of an elephant's head. Clothes were 
hung on the ears and turned-up trunk. The elephant's neck fit 
snugly like a puzzle piece onto a knob that attached to a wall. 

Miyamoto had other hangers as well: a bird and a chicken. Then 
he showed Yamauchi some drawings for more elaborate toys — a 
whimsical clock for an amusement park; a swing within a seesaw 
on which three children could play at once. 

Yamauchi saw ingenuity and resourcefulness in the work, and he 
hired Miyamoto to be the company's first staff artist, even though 
the company had no specific need for one at the time. Miyamoto 
was assigned to be an apprentice in the planning department. 

When Yamauchi called Miyamoto into his office in 1980 the 
young man looked down at his hands, his long fingers folded on the 
smooth table in front of him. He listened intently as Yamauchi told 



I . MARIO 



him that he was looking for a video game. Miyamoto had played 
many video games at college in Kanazawa. He loved them. In 
video games, cartoons came to life. 

He boldly told the Nintendo chairman that he would enjoy cre- 
ating a game. However, he said, the shoot-'em-up and tennis-like 
games that were in the arcades at that time were unimaginative, 
simply uninteresting to many people. He had always wondered why 
video games were not treated more like books or movies. Why 
couldn't they draw on the great stories: some of his favorite leg- 
ends, fairy tales, and fiction— King Kong, Jason and the Argonauts, 
even Macbeth! 

Nodding impatiently, Yamauchi rushed to the point: A Nin- 
tendo coin-operated video game called "Radarscope" was a disas- 
ter. There was no one else available to come up with a new game 
design. Miyamoto had to try to convert "Radarscope'' to some- 
thing that would sell. Yokoi would oversee the project, but 
Miyamoto was on his own. 

After consulting with the R&D 1 chief, Miyamoto returned to 
his desk with the schematic drawings of "Radarscope," which he 
found simplistic and banal. Enemy planes approached and players 
had to shoot them down. Miyamoto threw it away. He asked ques- 
tions of technicians about the kinds of movements characters could 
make, the possibilities for different-size characters, and the varia- 
tions of action and reaction that were possible. Nintendo was ne- 
gotiating with King Features for the rights to use the Popeye the 
Sailor Man comic as a video game, and Miyamoto was told he 
could work with those characters. The Popeye license from King 
Features fell through (although the license was later renegotiated 
and the Popeye game was made), so he tried other ideas. 

He thought about Beauty and the Beast, but simplified the story. 
He came up with his own beast, a King Kong-like ape, a humorous 
bad guy, "nothing too evil or repulsive," Miyamoto recalls. The 
ape would be the pet of the main character, "a funny, hang-loose 
kind of guy" who was not especially nice to the gorilla. "It was 
humiliating! How miserable it was to belong to such a mean, small 
man!" says Miyamoto. At his first opportunity, the gorilla escaped 
and kidnapped the guy's beautiful girlfriend. 



GAME OVER 



The gorilla didn't take the woman to hurt her— an important 
point in Miyamoto's mind— but to get back at the little man. The 
man, of course, then had to try to save the girl. 

Miyamoto wanted the main character to be goofy and awkward. 
He chose an ordinary carpenter, neither handsome nor heroic. He 
wanted him to be Walter Mittyesque, someone anyone could relate 
to. On a large sketch pad he drew a nose. "Having a nose or not 
having a nose is completely different," he says. "Noses say a great 
deal." The nose Miyamoto created was a distinctive bulbous orb 
made even more noticeable because of the exaggerated bushy 
mustache beneath it. From one of his old notebooks filled with 
characters, he chose a pair of large, pathetic eyes. 

The engineers had taught Miyamoto that it was important to 
distinguish the body so it would be visible on a video-game screen. 
Therefore he clothed his chubby character in bright-colored car- 
penter's overalls. In order to make the movement obvious in the 
simple animation of video games, it was important that characters' 
arms moved, so he drew stocky arms that swung back and forth. 
The engineers said it was difficult to accurately represent hair in a 
video game because of inertia: when a character fell, logically his 
hair would have to fly up. To avoid the problem, Miyamoto added a 
red cap. "Also," he adds, "I cannot come up with hairstyles so 
good." 

Many of his ideas for the game were rejected by Yokoi; 
Miyamoto's characters had to do simpler things than he wanted 
them to. He ended up having the carpenter maneuvering up the 
unfinished foundation of a building in order to reach the gorilla, 
who had climbed to the top with the girl. To get there the little man 
ran up ramps, climbed ladders, rode conveyor belts, and jumped 
on elevators while trying to avoid the objects the gorilla hurled at 
him — cement tubs, barrels, and beams. 

Miyamoto was nearly finished, but the game needed background 
music. He wrote it himself, on an electronic keyboard attached to a 
computer and stereo cassette deck. When the game was complete, 
Miyamoto had to name it. He consulted the company's export 
manager, and together they mulled over some possibilities. They 
decided that kong would be understood to suggest a gorilla. And 
since this fierce but cute kong was donkey-stubborn and wily (don- 



I , MARIO 



key, according to their Japanese/English dictionary, was the trans- 
lation of the Japanese word for stupid or goofy), they combined 
the words and named the game "Donkey Kong." 

Later, when the American sales managers who would sell the 
game outside Japan heard the name, they looked at one another in 
disbelief, thinking Yamauchi had flipped. "Donkey HongV 
"Konkey DongT "Honkey DongV It made no sense. Games that 
were selling had titles that contained words such as mutilation, 
destroy, assassinate, annihilate. When they played "Donkey Kong," 
they were even more horrified. The salesmen were used to battle 
games with space invaders, and heroes shooting lasers at aliens. 
One hated "Donkey Kong" so much that he began looking for a 
new job. 

Yamauchi heard all the feedback but ignored it. "Donkey 
Kong," released in 1981, became Nintendo's first super-smash hit. 

When Yokoi later needed help with games for Game & Watch, 
Yamauchi told him to use Miyamoto, since his other designers 
were busy with their own projects. "I asked him to do creation and 
I would supervise," Yokoi says. 

The computer chips that were affordable and tiny enough to fit 
into a Game & Watch could store few characters and even fewer 
movements, so Miyamoto was limited to telling simplistic stories. 
He adapted a simpler form of "Donkey Kong" for Game & Watch, 
and after the agreement for the Popeye license was hammered out, 
he made a mini "Popeye the Sailor Man" game. The latter game 
has Popeye attempting to save Olive Oyl from Brutus. When 
Popeye is weakened by too much of Brutus's abuse, he gains 
strength by downing cans of spinach. Millions of "Donkey Kong" 
and "Popeye" Game & Watches were sold. 

In 1984, Miyamoto was again summoned to the chairman's of- 
fice. Yamauchi explained that he needed more games, this time for 
the Famicom. Miyamoto was to head up a new division, R&D 4. 
The group, Joho Kaihatsu, or the entertainment division, had one 
assignment: to come up with the most imaginative video games 
ever. 

The decision was one of the smartest Yamauchi would ever 
make. Miyamoto, it was soon apparent, had the same talent for 



5D GAME OVER 

video games as the Beatles had for popular music. It is impossible 
to calculate Miyamoto's value to Nintendo, and it is not unreason- 
able to question whether Nintendo would have succeeded without 
him. 

After meeting with Yamauchi, Miyamoto returned to his desk. 
He took a pencil and began sketching the suspendered hero from 
"Donkey Kong," who had been given the name Mario. Someone 
had mentioned that Mario looked more like a plumber than a 
carpenter, so he made the new Mario into one. Since plumbers 
spend their time working on pipes, large, radiant-green sewer 
pipes became obstacles and doorways to secret worlds in his next 
game, "Super Mario Bros." 

The brother Miyamoto created for Mario was Luigi, as tall and 
string-bean thin as Mario was short and fat. That attribute, as well 
as the color chosen for his overalls (green to Mario's red), was 
simply to distinguish the two characters on the fast-moving game 
screen. 

"Super Mario Bros." and the sequels Miyamoto designed soon 
became the most loved video games ever. The "Mario" games 
were more interesting because there were always new worlds to 
conquer, each one more magnificent than the last. There are walk- 
ing plants, fish that Dr. Seuss might have created, dragons, ser- 
pents, flying turtles, fire-spitting daisies, and angel wings upon 
which Mario and Luigi can hitch a ride. 

Humor was subtly introduced into the adventure. Miyamoto's 
mind bent around corners; players' minds follow, delighted. Even- 
tually they figure out that the princess has to ride atop a ladybug if 
she is going to get to the boss of one level in "Super Mario Bros. 
2." (The ladybug looks up her skirt as they head there.) The 
miniboss of that world— the chief bad guy— spits out lethal eggs 
larger than his head. In one sequel to "Super Mario Bros.," players 
have to figure out how to get through a seemingly unreachable 
door. Mario has to remove some of the coins that are floating in 
front of the door and take them back to another room to trip a 
"switch block" that changes the coins into stones. The stones can 
then be used as steps up to the door. Kids spend hours compul- 
sively trying to figure it out. 

Adults enjoy Mario too. They respond, Miyamoto feels, because 



I , MARIO 5 1 



the games bring them back to their childhoods. "It is a trigger to 
again become primitive, primal, as a way of thinking and remem- 
bering," Miyamoto says. "An adult is a child who has more ethics 
and morals. That's all. When I am a child, creating, I am not 
creating a game. I am in the game. The game is not for children, it 
is for me. It is for the adult that still has a character of a child." 

Miyamoto borrowed freely from folklore, literature, and pop 
culture— warp zones from Star Trek, empowering mushrooms from 
Alice in Wonderland—but his most captivating ideas came from his 
unique way of experiencing the world and from his memories. 
When Mario jumps up in space at certain locations, nothing ought 
to happen because nothing is there, but Mario finds secret, power- 
ful mushrooms and invisible doorways to new worlds. "I exagger- 
ate what I experience and what I see," Miyamoto says. 

In the "Mario" games and in some of Miyamoto's other popular 
games, such as "The Legend of Zelda" and its sequel, part of the 
adventure is wandering into new places without a map. "When I 
was a child, I went hiking and found a lake," he says. "It was quite 
a surprise for me to stumble upon it. When I traveled around the 
country without a map, trying to find my way, stumbling on amaz- 
ing things as I went, I realized how it felt to go on an adventure like 
this." In the games, it often is quite a surprise to come upon a lake 
amid a forest, a rocket ship hidden beneath the sands of a desert. 

"When I went to the university at Kanazawa, it was a totally 
strange city for me," Miyamoto says. "I liked walking very much, 
and whenever I did, something would happen. I would pass 
through a tunnel and the scene was quite changed when I came 
out." TUnnels in his games are doorways to unexpected things. At 
the other end of a tunnel the fog may be so thick that it is impossi- 
ble to see what is ahead. In order to explore the new place, the 
player must return through the tunnel to search for a hidden torch. 
Armed with the torch, the player is able to go back through the 
tunnel and face what is hidden in the fog. In "Super Mario Bros. 3" 
and "Super Mario World," Mario can fly. However, as in 
Miyamoto's (and many people's) dreams, he often cannot fly high 
enough or long enough before he comes crashing down to earth. 

There are often great risks attached to exploring the worlds in 
Miyamoto's games. "I was living in an apartment in Kyoto, and 



52 GAME OVER 



nearby was a building that had a small manhole cover mounted in 
the wall," Miyamoto remembers. "I walked by it every day and I 
noticed it. I wondered, Why is a manhole on the wall? Where does 
it lead?" Miyamoto never found out, but in "Super Mario Bros.," 
when the player encounters a manhole, he can choose to do what 
Miyamoto never did: open it and go inside. To do so is worthwhile. 
Miyamoto as a child had worked up the courage to go beyond 
the periphery of the forbidding cave he had discovered. "The 
spirit, the state of mind of a kid when he enters a cave alone must 
be realized in the game," he says. "Going in, he must feel the cold 
air around him. He must discover a branch off to one side and 
decide whether to explore it or not. Sometimes he loses his way." 
Not just the experiences but the feelings connected to those events 
were essential to make the game meaningful. "If you go to the cave 
now, as an adult, it might be silly, trivial, a small cave," Miyamoto 
says. "But as a child, in spite of being banned to go, you could not 
resist the temptation. It was not a small moment then." 

In Sonebe, Miyamoto had once climbed a tree and gotten high 
enough to see far-off mountains before he realized that he was 
stuck; there was no way he could get down. Super Mario gets 
himself into similar fixes all the time. Once while fishing when he 
was a young boy, Miyamoto reeled in a bony, grotesque little fish 
with snapping jaws. Mario encounters the fish that Miyamoto as a 
child imagined he had hooked: a monstrous creature that would 
happily devour him. 

The memory of being lost amid the maze of sliding doors in his 
family's home in Sonebe was re-created in the labyrinths of the 
"Zelda" games, while in the Mario series Miyamoto made safe 
places that felt like the haven of his parents' attic. The dog that had 
terrorized him when he was a child attacks Mario. "I am especially 
proud of the dastardly, repulsive characters," he says. Miyamoto's 
dream was to make games that created worlds in which game 
characters could be more like players' companions, seemingly in- 
dependent. "Perhaps they can even be ourselves at other times in 
our lives," he explains obliquely. 

Older and more sophisticated players often miss much of the 
magic in the games. Young children, who do more leisurely explor- 
ing, and quiet and thoughtful children, who are more contempla- 



I, MARIO 53 

tive, have a better chance of finding hidden secrets than the kids 
who blast through, charging toward the goal. "The players must be 
thinking, 'Well, I don't see anything here, but it can be, it's possi- 
ble.' Then the player is curious enough to visit that place. When he 
finds something he never expected, he feels, 'Ah, I did it. I made 
it.' It's a great kind of satisfaction." 

The most wondrous surprises are timed to occur at intervals that 
keep things hopping. It is worth going forward because something 
good is waiting around the next corner, or in the next world. Some 
of the secrets are so well hidden that it is a miracle kids find them 
at all. Each level of each game ends with a flagpole, but a secret 
whistle in "Super Mario 3" is hidden beyond and above the flag- 
pole — in a place that seems to be outside the game, or at least 
outside the part of the game that can be seen on a television 
screen. It is as if Mario has to fly out of the television set for a 
while until he reaches the entrance to a secret room. Who would 
ever think of trying it? Those who do are amply rewarded. The 
whistle gives Mario the power to travel to any world in the game at 
any time. 

Many of Miyamoto's subsequent games not only had the same 
characters and roughly the same goals, but built on the skills that 
were learned in the preceding games. There were many new lands 
and new tricks, and with them the sense of accomplishing new 
things, yet there was also the comfort of not having to learn a game 
from scratch. 

At Nintendo, Miyamoto's stature increased. After being made 
the director of his first games, he earned the title of producer. It 
meant a great deal to him: he had the same title as his idol, George 
Lucas (Raiders of the Lost Ark was Miyamoto's favorite movie). 
Now, instead of working on one game at a time, he oversaw the 
production of several, each budgeted at more than $1 million. 
From six to twenty people worked on each game for a period of 
twelve to eighteen months. 

Technology eventually progressed to make some of the produc- 
tion stages easier. Originally Miyamoto had to paint each charac- 
ter. The colors in the painting were given numbers and the 
numbers were inputted into a computer, dot by dot. He showed 



54 GAM E O VER 



programmers not only how the character looked but how it moved 
and what special traits it had (a bee, when hit, lost its wings but 
continued to stalk Mario; boats made out of skulls sank into a fire 
pit). The characters and their movements were written, line by 
line, as instructions in a computer program. 

Tools were developed to eliminate much of the tedious work. 
Diagrams and drawings were translated into computer graphics 
with technology called Character Generator Computer Aided De- 
sign (CGCAD). "Character banks" of images were stored along 
with the codes that described them. Movement, too, was now 
programmable from a bank of choices. 

Miyamoto was a terrible manager of his division; he needed an 
assistant to keep everything and everyone organized. Nonetheless, 
he oversaw all aspects of the creation of the games. He wrote the 
scripts and then worked with editors, artists, and programmers. 
When a game was nearly completed, he spread out its blueprint 
across a room full of tables that had been pushed together. The 
blueprint was the map of a game's pathways, corridors, rooms, 
secret worlds, trapdoors, and myriad surprises. Miyamoto lived 
with it for days, traveling through the game in his mind. As he went 
along, he determined which points were too frustrating or too easy. 
He added mushrooms or a star to make Mario invincible. He made 
certain that the moments that gave the greatest delight — a dino- 
saur that hatched from an egg, a feather that let Mario fly — came 
at sufficiently frequent intervals. 

When he had edited a game to his satisfaction, Miyamoto went 
back to his director and technicians and had them incorporate his 
revisions. They worked for many days and nights on the changes, 
testing idea after idea, until Miyamoto was happy with the pacing. 

When the game was ready, it was scored. Music was just as 
important for a game as for a movie: the same world could seem 
scary or lighthearted, depending on the music. 

Miyamoto worked with a professional, in-house composer, most 
often with a brilliant young musician named Koji Kondo, who 
wrote the music for all the "Super Mario" games. Kondo's music 
became so popular that recordings of his Nintendo music were 
successful CDs and records. (In Tokyo, a symphony performed 
Kondo's "Mario" music, and the Jamaican reggae singer 



I, MARIO 55 

Shinehead borrowed the "Mario" theme for the chorus of a rap 
song.) 

After the music was added and the final edit completed, 
Miyamoto's games were ready. Kids were waiting. Between 1985 
and 1991 he produced eight "Mario" games. An astounding 60 to 
70 million were sold — either individually or packaged with hard- 
ware as an incentive to buy Nintendo systems — making Miyamoto 
the most successful game designer in the world. One designer 
suggests it is because he is left-handed. Miyamoto shrugs: "I think 
it is nothing more than destiny." 

As his games' popularity grew, Miyamoto became well known in 
Japan and beyond. Westerners who made the pilgrimage to Kyoto 
to meet him included Paul McCartney, who, during a Japanese 
tour, said he wanted to see Miyamoto, not Mount Fuji. As a fan of 
the Beatles, especially Abbey Road, Miyamoto was thrilled, al- 
though he was never quite able to fathom the attention he re- 
ceived. 

Meanwhile, Miyamoto had met a woman named Yasuko, who 
worked in Nintendo's general administration department. They 
dated and soon married. He had been living in a nearby Nintendo 
dormitory, and he and Yasuko moved into a small house near 
Nintendo's office. From there he walked or rode a bicycle to work. 
Yasuko stopped working when the first of their two babies was 
born. The family would walk down the street in Kyoto, and his 
fans, who reverently call him Dr. Miyamoto, often stopped him to 
pay homage. Miyamoto didn't change much. Even when he was 
approaching forty and started cutting his hair shorter (although no 
one would ever call it neat), he remained unassuming and shy. His 
mind never stopped wandering to new places — places that were re- 
created in his newest games. 

In spite of a string of hits made by Miyamoto and by the other 
R&D groups, Yamauchi still was unable to meet the demand for 
games. Retailers were turning away hordes of customers, which 
distressed them. Yamauchi himself feared that customers who 
couldn't get enough games would move on to other forms of enter- 
tainment, perhaps a competitor's video game system. How, he 
wondered, could he increase the number of games available? 



5B GAME OVER " 

Many companies, mostly producers of video-arcade or floppy-disk 
computer games, had approached him, but Yamauchi hadn't 
wanted to relinquish any control over the games. If games of poor 
quality were released, his customers would become disappointed 
with the Famicom. But the real reason he didn't want other com- 
panies to produce games for his machine was that they would 
make piles of money, and Yamauchi wanted it all for Nintendo. 



\. 



\ 4 

IN5IDE THE \ 

MOTHER BRAIN ^ 



In a moss-carpeted park in the center of Kyoto's business district, 
amid still-dormant cherry trees, a man in a dark suit sipped tea and 
wrote haiku. The business day seemed to have thawed away into a 
tranquil pool of deliberation. 

Across the street, in lounges, men sat before tall bottles of beer 
and delicate cups filled with warmed sake. The frenetic day shaken 
off like a brittle cocoon, the men felt replenished, even as the poet 
in the park took up his pen. A line of carbon-black ink assaulted 
the white parchment before him. 

Night fell and an electric day was born in the Las Vegas blinking 
of the pachinko parlors and the electric street lamps, the spotlights 
on billboards, and the neon announcements for Coca-Cola and 
Sony. The poet vanished, but many of the businessmen ducked 
into nearby karaoke bars, where pretty, young hostesses giggled 
and made small talk and poured the next drink. Men — by day stern 
and forbidding — took turns climbing up on stage, where they took 



GAME OVER 



hold of a microphone and sang love songs to prerecorded accom- 
paniment. 

Karaoke had become a favorite after-work ritual for many busi- 
nessmen; they took to it nightly, religiously. An important manager 
of a high-technology company arrived to join a group of men and 
was introduced not by his position in the company but by his dis- 
tinction as the number-one singer in his office. 

Across the river that divided Kyoto, it was quieter. Light ema- 
nated from the ribbon of windows that wound around the Nin- 
tendo compound. Inside, no one sang. Hiroshi Yamauchi had no 
tolerance for karaoke. 

At the entrance of the main building was a large waiting area 
that had all the intimacy of an airport terminal. There were rows of 
uncomfortable molded-plastic chairs and couches and Formica- 
topped end tables. Behind a marble-topped reception desk were 
women in powder-blue skirts and smocks* some with tiny pillbox 
hats. The walls were devoid of all decoration. A maze of hallways 
with shiny waxed floors lay beyond the waiting room. Behind one 
anonymous door was Hiroshi Yamauchi's office, called by one em- 
ployee, "the realm of the Mother Brain." In the game "Metroid" 
the Mother Brain was the pulsing, laser-spewing creature that 
hurled bolts of crimson electricity and survived by sucking the 
universe of all of its energy. 

Inside Nintendo's Mother Brain was a substantial wooden desk 
that faced a small coffee table with couches on either side. The 
carpet was industrial gray, speckled with beige. There was a small 
television on a shelf. 

A little after nine in the evening, Yamauchi concluded his final 
meeting of the day. Emerging from a conference room, he padded 
down the hallway in rubber sandals, his tie loosened, and headed 
back to the seclusion of his office. 

Employees filed out — a succession of men and women wearing 
Nintendo-blue (hospital-blue) smocks or jackets, or else white 
shirts with dark business suits. They headed to their cars or to the 
train or simply walked down the road to their nearby corporate 
living quarters. 

Gunpei Yokoi and Hiroshi Imanishi were huddled together in a 



INSIDE THE MOTHER BR AIN 59 



conference. Some of Sigeru Miyamoto's R&D team, in the corner 
of a huge room under parallel rows of fluorescent lights, were 
playing a test version of a new game, searching for an irksome bug 
that had been detected earlier that day. (A bug is a flaw in a 
program that causes malfunctions.) From a cubicle in one corner 
of a large open office, the tearful voice of a female Japanese pop 
singer crooned desperately to the man who had betrayed her. 

There were no sounds or voices along the corridor that led to 
the Mother Brain. Inside, another man had joined Yamauchi. They 
greeted each other and sat on the couches on opposite sides of the 
low table. Before leaving for the day, Reiko Wakimoto, Yamauchi's 
secretary, delivered a silver tray upon which was a bottle of fine 
Scotch, two heavy crystal tumblers, and a small bucket filled with 
ice. She poured drinks for the two men before departing, bowing 
respectfully. 

Yamauchi's hair had thinned, but he still combed it straight 
back. The silver was more pronounced, more distinguished. As he 
spoke, he rubbed his hands on the wooden arms of his chair. He 
sat with his head jutting forward, which made it seem out of pro- 
portion to his small frame. He talked through clenched teeth, his 
chin taut and drawn. 

"Your move," he said. 

Yamauchi always wore dark suits with plum or navy ties and 
yellow-tinted glasses that gave his face a pronounced pallor. With- 
out the jacket and with his tie removed, he seemed frail, his body 
shrunken in the oversized armchair. He leaned his head back and 
narrowed his eyes. 

The two men clasped their drinks — Yamauchi's companion 
shook his in a circling motion; ice skated around the glass — and 
stared at the square board resting on the table between them. The 
board, made of blond wood, was covered with a grid of thin black 
lines, nineteen vertical and nineteen horizontal. The 361 intersec- 
tions on the board represented the world. Smooth white "stones" 
(made of clamshells) and black ones (made of slate) were posi- 
tioned strategically on the board. They represented the two forces 
in conflict, both trying to control the game board — the universe. 

The game they played, go, is a Japanese game sometimes com- 



GAME OVER 



pared to chess, although it is really the antithesis. The object in 
chess is to whittle away at one's opponent's forces until the playing 
field is desolate and the king is hunted down. Go, on the other 
hand, is about building and balance — balancing aggression and 
caution, influence and restraint, friendliness and disharmony. The 
rules are much simpler than chess, yet the game is more complex. 
David Weimer, a professor at the University of Rochester who 
teaches go, says that Western games such as chess take "the 
Clausewitzean view of conflict — go for the capital and destroy ev- 
erything along the way." But in go "you have to be patient; early 
moves may not have full consequences until much later." 

Go is a difficult game to learn to play and takes a lifetime to 
master. A neophyte go player is rated as a Q 10. As he progresses, 
he works his way up through the Q levels, eventually making first 
Q. That is followed by first dan, which is the equivalent of a black 
belt in judo or karate. A player then goes up the scale of dan — 
second, third, fourth dan, and so on until tenth dan. Hiroshi 
Yamauchi was sixth dan, a sixth-degree black belt. 

Yamauchi's opponent was one of Nintendo's licensees — his 
company developed and sold approved Nintendo games. Licensees 
were in a precarious position, for Nintendo gave away little and 
one had to play by Yamauchi's rules. 

Because of this, Yamauchi's opponent felt it was prudent to 
learn all he could about the Nintendo chairman. An astute man 
could learn volumes about an opponent by his go game. 
"Yamauchi's game is obvious and clear. Nothing is hidden," the 
man observed. "It is very forceful when it has to be, yet there is 
give and take. But when he becomes strong, he does not look back. 
He takes advantage of weakness. He knows far in advance what 
will happen and he never loses his composure." 

When Yamauchi decided to allow outside companies to create 
games for the Famicom, he initiated a licensing program. To be- 
come a Nintendo licensee, a company had to agree to unprece- 
dented restrictions. Companies that were "invited" to become 
licensees were appalled at the terms of the agreement, but Nin- 
tendo's position was immovable. No one was forced to become a 
licensee, Yamauchi noted, and in spite of the complaints, compa- 



INSIDE THE MOTHER BRAIN 



nies signed up, because millions of customers were clamoring for 
games. The vastness of the Famicom market was enough to silence 
the complaints, and many companies made fortunes. Nintendo, of 
course, made the biggest fortune of all. 

T\vo companies, Namco, the reigning arcade-game company, 
and Hudson, a computer-software maker, became the first two 
licensees. Hudson released a game called "Roadrunner." Before 
that, Hudson had sold a maximum of 10,000 copies of any com- 
puter game. "Roadrunner" sold 1 million units and was responsi- 
ble for the quadrupling of Hudson's annual profits in 1984. Namco 
sold 1.5 million copies of a game called "Xevious." A new Namco 
building was nicknamed the Xevious Building because the game 
had paid for its construction costs. 

Another company, Taito, founded in the 1950s as a jukebox 
manufacturer, was a large pinball-machine and coin-operated 
video-game company. Taito had made the game behind a surge in 
interest in video arcades. In "Space Invaders," rows of aliens de- 
scended in formation, unremittingly, on the black-and-white TV 
screen of a large console. The player controlled a mobile cannon at 
the bottom of the screen that fired shots at the invaders, which 
came faster and faster until they were entirely destroyed or their 
opponent — the player — succumbed. 

While most companies sold arcade-game machines to distribu- 
tors or licensees, Tkito, in Japan, also owned and operated more 
than 100,000 coin-op games in arcades, which meant there was no 
middleman participating in "Space Invaders" earnings. Taito raked 
in so much cash that the company was in a strong position to 
diversify, and its chairman signed an agreement with Hiroshi 
Yamauchi. Taito and the other initial licensees (Konami, Capcom, 
Bandai, Namco, and Hudson) had the right to produce their own 
cartridges for the Famicom, a right no future developers or pro- 
ducers would get for many years. They paid Nintendo a large 
royalty on every game cartridge they sold (about 20 percent). 

Konami, which was based in Kobe, had been successful at selling 
computer games, dedicated hand-held games (plastic Walkman- 
size games that had been programmed to be "dedicated" to play 
one game only), and coin-op games, but it grew enormously as a 



GAME OVER 



result of its Nintendo license. In five years, its earnings shot up 
from $10 million in 1987 to $300 million in 1991; there was a 2,500 
percent increase in sales between 1989 and 1991 alone. 

After the six licensees had begun selling games, Hiroshi 
Yamauchi realized that he had not only given away his ability to 
control the quality of cartridges (some defective games had 
reached the market), but some potential profits as well, because he 
had allowed the companies to manufacture their own games. 
Henceforth Nintendo would be the sole manufacturer of games for 
the Famicom. The licensees would develop them and then place an 
order with Nintendo for a minimum of 10,000 cartridges. The 
terms were elegantly simple: Nintendo insisted on cash, in ad- 
vance. 

In the new contract, Nintendo was paid about 2,000 yen per 
cartridge by the licensees, about twice what it took to produce 
them. Whether a company ordered 10,000 or 500,000 cartridges, 
Nintendo profited handsomely, even if the games didn't sell. 

Licensees might have operated with caution and placed small 
10,000-piece orders, but those could be as risky as large orders. 
Companies were in business for hits, "grand slams," as one game 
maker called them. If a company cautiously ordered a small num- 
ber of games and found it had a big seller on its hands, Nintendo 
could take its time filling the order. The game's popularity might 
pass by the time the games were back in the stores. Companies, 
particularly small licensees without deep cash reserves, had to risk 
perilous amounts of capital on large orders if they wanted to gam- 
ble on big successes. They shouldered all the risk while Nintendo 
collected obscene profits, which came with almost no additional 
investment. (Nintendo subcontracted licensees' orders to outside 
manufacturers.) 

It was common for a game to sell 300,000 copies, and the num- 
ber was often three or four times that many. At the low end of such 
sales figures, Nintendo collected $2.2 million. For a million-seller, 
Nintendo's take was over $7 million. It was easy money, risk-free, 
and the licensing agreements accounted for a growing proportion 
of Nintendo's profits as more companies signed on. In 1985 there 
were seventeen licensees. A year later there were thirty. By 1988 
there were fifty. 



INSIDE THE MOTHER BR AIN B3 



Sitting across the table from Hiroshi Yamauchi, staring fixedly at 
the smooth stones on the go board, Henk Rogers broke into a wide 
smile. He had found a hole in Yamauchi's defenses and had placed 
a stone on the board in position for an attack. 

Yamauchi's expression remained impassive. He looked up for a 
moment, eyeing Rogers, a generation younger and as different a 
man as imaginable from himself. Rogers had a wolfish, pointed 
beard and longish ebony hair parted in the middle and swept back 
over his forehead. Above coffee-colored eyes hung lavish cunei- 
form eyebrows. 

Both men drank the Scotch from their glasses and examined the 
board in front of them. Rogers, as a three-daw player, three levels 
below Yamauchi, enjoyed a handicap of three. He thus got to place 
three stones at the start of the game, the equivalent of three free 
moves. This meant that Yamauchi could win only if Rogers made 
three mistakes. 

Rogers now made his third mistake. Yamauchi had seen in his 
opponent a broad streak of recklessness, so the move came as no 
surprise. He took advantage of the error and added a stone that 
determined the remainder of the game. Rogers was helpless. 

The younger man shrugged. "Good move," he whispered. There 
was nothing he could do to save himself. 

Henk Rogers lived with his parents in Amsterdam for eleven 
years before his father's gem business took the family to New York 
City in 1964. After Henk graduated from high school, the family 
moved to Oahu, where he enrolled at the University of Hawaii. 
Most mornings, before class, he surfed on the island's northern 
beaches. 

Rogers spent most of his time on the U.H. campus in the com- 
puter-science building, playing games on terminals connected to 
mainframes. Game playing led to programming. "For a gamer, 
programming is the ultimate game," he says. 

After graduating, he found a job in California at a software 
company that had a contract with the U.S. military. After a sum- 
mer, he quit. "I didn't want to spend my life finding better ways to 
kill people." 



GAME OVER 



In the meantime, Rogers's family had moved to Japan, and he 
joined them in 1976. He lived in Yokohama, a Tokyo suburb, and 
studied Japanese. He had connections that could have landed him 
a job at one of the major Japanese computer companies, but he 
felt that, as a foreigner, it would be a dead end. "The fact is," he 
says, "if you're not Japanese, you're not going to be president of 
NEC. It's just not going to happen." 

He taught English and then accepted an offer to work with his 
father. The gem business was thriving. The Rogerses bought rough 
stones and had them cut in Bangkok and Hong Kong. They sold 
the finished gems throughout Asia and in a shop near Tokyo. Henk 
worked in the family business for seven years. He also learned to 
play go from his father, a six-dan player. 

Personal computers had proliferated by then. A gamer no longer 
needed access to a mainframe to play and create games. Messing 
around with a PC, Rogers created an electronic version of "Dun- 
geons and Dragons," the popular role-playing game that was an 
obsession on high school and college campuses back in the United 
States. The game, "Black Onyx," was, he believed, his ticket to 
freedom. He planned to sell it for a small fortune. 

Rogers took the game to a number of computer-software com- 
panies until he found one that was interested. He shook hands on a 
verbal agreement with the company's president. When it came 
time to collect his advance and sign the contract, however, the man 
tried to pay less than he had promised. Computer games in those 
days were often created by struggling college students or unem- 
ployed hackers who were ecstatic if someone wanted to publish 
their game; they commonly signed contracts for almost nothing. 
Rogers, however, refused to sign, even when the publisher threat- 
ened to keep Rogers from publishing his game elsewhere. 

Rogers decided to market "Black Onyx" himself. He placed 
advertisements in computer magazines throughout Japan and, his 
wife manning the telephones, waited for the calls to pour in. There 
were three phone calls in three months. 

The problem, he diagnosed, was that there was no understand- 
ing of role-playing games in Japan; "Dungeons and Dragons" was 
not popular there. The solution, he concluded, was to educate 
Japanese gamers. 



INSIDE THE MOTHER BRAIN 65 

He talked his way into the editorial offices of computer maga- 
zines and convinced editors and writers to try his game. He set it 
up on their computers as they watched over his shoulder. After 
calling up an array of bodies and heads on the computer screen, he 
told the players to choose ones that looked like them, and he typed 
in their names below the figures they had created. The characters, 
he explained, were them. The essence of a role-playing game was to 
accept that premise. The player was not watching the character; he 
was the character. 

Rogers was nothing if not enthusiastic, and his enthusiasm was 
contagious. He guided the editors and writers into the first of his 
game's dungeons, where they were shown how to explore and fight. 
When they won a battle, they gained experience and strength 
enough to venture into the next dungeon. He left the offices with 
the editors and writers enraptured; they continued playing for 
weeks. The magazines reviewed "Black Onyx," showering it with 
raves. Rogers sold 100,000 copies in 1980. 

By the time he released a sequel to "Black Onyx," Rogers had 
formed a company, Bullet-Proof Software, BPS. It was a frustrat- 
ing, uphill struggle to get BPS games into software shops. Rogers 
spoke Japanese and was accessible and respectful, but he was a 
gaijin, a foreigner. It was a formidable barrier, but he learned to 
use it to his advantage. He allowed the arrogance he encountered 
to placate business adversaries and catch them off guard. "I 
walked through the wall as if it didn't exist," he says. 

With the success of his second game, "Fire Crystal," Rogers 
expanded BPS. He couldn't create all the games himself, so he 
went out in search of games to license. The Japanese game compa- 
nies were the ones at a disadvantage at the international trade 
shows where designers hawked their games. Rogers had connec- 
tions around the globe, spoke several languages, and had a re- 
markable ease with businessmen, who found him a willful 
negotiator, as well as with young gamers, who realized that he was 
one of them. When he could get away with it, Rogers wore colorful 
Hawaiian shirts in place of drab business suits and bestowed bear 
hugs instead of handshakes. From the moment he opened his 
mouth it was evident that he loved games. It led to licenses from all 
over the world. 



GAME OVER 



Rogers wanted to release a computer go game. Although there 
was a proliferation of chess programs, go didn't lend itself as well 
to programming. In chess there are a limited number of good 
responses to any move, whereas in go the number is astronomical. 

Go programs frustrated good players. Human opponents 
learned from their mistakes, but computers made the same moves 
over and over again. Artificial intelligence — later technology — 
would give computers the ability to analyze a game and "learn" 
from its mistakes, but even the best go programs were not yet 
capable of highly sophisticated play. 

Rogers decided to release a go program for novice players. If 
nothing else, the computer was a tireless, patient teacher. He 
searched for go programs around the world and finally came up 
with one he considered appropriate for beginners. It was written by 
a man who had won the world computer go championship in Bei- 
jing, and who happened to be from Rogers's native Holland. A 
deal was struck and BPS released the game, which sold modestly 
well. 

BPS grew, but the computer-game business was shrinking. The 
largest number of people playing the games were not using com- 
puters anymore; they were using Nintendo's new Famicom video- 
game system. People who owned computers might buy one game a 
year. Famicom owners bought many. 

Some computer games could be converted to run on the 
Famicom, which was designed to have better graphics and faster 
action than computers. The Famicom wasn't as powerful as 
computers, however, so many of the games had to be simplified. 
Yet the trade-off was worthwhile because of the size of the mar- 
ket. By 1988, there were ten million Famicom systems in Japa- 
nese homes. 

Though many computer-game companies had become early 
Nintendo licensees, others couldn't afford to. For an en- 
trepreneurial company as small as BPS, becoming a Nintendo li- 
censee was almost impossible, although that didn't stop Rogers. 

An ordinary attempt to reach Hiroshi Yamauchi would be un- 
successful, Rogers knew. The man was unavailable to all but his 
biggest customers and suppliers, and they saw him rarely. They 
most often met with Nintendo managers, often referred to as 



" INSIDE THE MOTHER BRAIN 67 

"Yamauchi's generals," who operated like guard dogs, trained to 
menace and intimidate. 

However, Rogers did learn something about Yamauchi that 
might give him an entree. Rogers could appeal to him as part of 
the elite circle of men who played go. 

In a letter, written on the stationery of his American office, 
Rogers said that his company sold the best go computer program in 
the world and that he was interested in releasing it for the 
Famicom. He said he was in Japan for only a few days and he 
would make time to visit Nintendo if Yamauchi was available. 

The day after Rogers messengered the letter from Yokohama to 
Kyoto, he was contacted by Yamauchi's office and invited to a 
meeting. Rogers rushed to Kyoto on the bullet train and caught a 
taxi to Nintendo headquarters. A guard directed him to the lobby, 
where a receptionist told him to have a seat. An electronic version 
of a Beethoven cantata signaled that the lunch break was over. 
Reiko Wakimoto met him and instructed him to follow her to the 
chairman's office. 

Yamauchi, sitting behind his large desk, gave a quick nod when 
Rogers bowed respectfully. He did not rise when the young man 
approached him to shake hands but gestured toward one of the 
chairs opposite the desk. Wakimoto placed glasses of green tea in 
front of the men. 

Yamauchi listened as Rogers talked not about the go program or 
BPS but video games in general. Rogers sat up in the low-backed 
chair and spoke passionately. He knew what was hot in arcades 
and he theorized why. He revealed a keen understanding of the 
young people who played the games. Yamauchi let on nothing, but 
was impressed by both the young man's insights and his enthusi- 
asm. 

Rogers finally repeated what he had said in his letter: he wanted 
to create a go game for the Famicom. To do so, he would need 
more than just a license to work with Nintendo, since his small 
company didn't have the capital to pay for cartridges. He asked 
Yamauchi to back him. 

Without fanfare, Yamauchi said he would work with Rogers. He 
could spare no programmers, only cash. Rogers said cash would be 
fine. 



GAME OVER 



Yamauchi asked Rogers how much money he needed. Rogers 
had calculated how much it would cost him to develop the game 
and added a small profit. He threw out the figure. Yamauchi nod- 
ded. "Good," he said. "Done." Yamauchi had been so quick to 
agree that Rogers wondered if he had asked for too little. 

Before Rogers left the meeting, he challenged Yamauchi to a 
game of go. Yamauchi nodded his acceptance. The game would 
follow their next meeting, he said. He would schedule it at the 
conclusion of a workday. 

Rogers needed a new version of go that was simpler than his 
computer version. He contacted a programmer in England who 
had made a go program for the Commodore 64 computer, which 
had a variation of the same central processing unit as the 
Famicom. Rogers bought the rights. 

By the time it was ready, Yamauchi had decided that the market 
for a go video game was too small. The whole point of go was the 
serenity of play, the feel of the stones, the patience, and he felt it 
was incompatible with the Famicom — not many people would want 
to play the ancient game on what he still viewed primarily as a toy. 
Yamauchi told Rogers he could keep the money, but that he 
should come up with another idea for a Famicom game. 

Henk Rogers had too much invested in the go game not to see it 
released, and he asked Yamauchi if BPS could publish it. He said 
he would pay back the advance if Yamauchi would front him the 
manufacturing costs. 

Yamauchi liked Rogers enough to agree. Nintendo manufac- 
tured the cartridges and sent the first order to BPS in Yokohama. 
Rogers brought a cartridge with him on his next visit to Nintendo, 
inserted it into a Famicom, turned on the television monitor, and 
invited Yamauchi to sit down in front of it. Yamauchi had never 
played a Nintendo game before. He held the controller awkwardly 
and became frustrated as he tried to follow Rogers's instructions. 
He put down the controller and refused to try again. 

Rogers's go game sold 150,000 copies — unspectacular for a Nin- 
tendo game, but a huge number for BPS. Rogers easily paid 
Yamauchi back the money he had been advanced and found him- 
self in a particularly enviable position. Not only did his company 



INSIDE THE MOTHER BRAIN 69 

have a license to work with Nintendo, but he had something even 
rarer: a coveted relationship with NCL's chairman. 

BPS released other Famicom games, including "Super Black 
Onyx," a newer version of Rogers's game. BPS thrived, and the 
relationship Rogers had with Nintendo proved valuable to both 
companies. When Nintendo, years later, sent an emissary to the 
U.S.S.R. to negotiate with the Soviets for the rights to a brilliant 
game called "Tetris," Rogers was the man the company dispatched. 

The Famicom's popularity grew as licensees released their 
games. Another small company that signed on was Enix, a start-up 
formed specifically to create Nintendo games. Founded with a cap- 
ital investment of 5 million yen, the company attained the status of 
video-game giant through a game called "Dragon Quest" and its 
sequels. The original "Dragon Quest" was a combination of two 
PC games. It was developed by a team of game designers, pro- 
grammers, composers, and a well-known illustrator. Because Enix 
had so much confidence in its game, it put all its start-up money on 
the line and placed an order for 760,000 cartridges. 

"Dragon Quest" was released in February 1986. The Enix team 
panicked when the game hardly sold. It began advertising in 
Shukan Shorten Jump, a weekly boys' magazine with a circulation 
of 4.5 million copies. The magazine's editors agreed to publish an 
article about the role-playing game's lore and mythology. It 
sparked "Dragon Quest" sales; a groundswell followed. So many 
players called and wrote in with questions about the game that the 
magazine's editors decided to publish an ongoing series of articles 
about "Dragon Quest." Both Enix and the publisher benefited: 
Enix ordered more games from Nintendo — 1.4 million — and the 
magazine's circulation skyrocketed. Because of "Dragon Quest" 
sales, Enix's management that year gave its employees a bonus 
equivalent to twelve months' salary. 

A sequel, released the next year, sold 2.3 million cartridges, and 
"Dragon Quest 3" sold 3.4 million. The degree of anticipation for 
the games was unprecedented. On its first day in stores, 1.3 million 
copies of "Dragon Quest 4" sold out in an hour, despite a price tag 
of 11,050 ($75) yen, higher than for any other Nintendo game. 

The readership of Shukan Shonen Jump shot up to 18 million, 



7D GAME OVER 



and circulation grew to 6 million. For both magazine and licensee, 
the tie-in was a marketing coup that would not be lost on Nintendo 
(which, meanwhile, profited from the sales of the "Dragon Quest" 
games and from the publicity). Seven other publishers launched 
magazines that provided game tips, profiles of designers, and 
glimpses of upcoming Famicom games. 

By 1990, there were seventy licensees selling millions of copies 
of hundreds of games, almost all manufactured by Nintendo. In 
turn, the licensees' games helped sell more Famicom systems, so 
that almost every household in Japan with children had one. Cer- 
tain licensees made fortunes. The "Dragon Quest" sequels grossed 
several hundred million dollars apiece. 

During those days, the only companies that still complained 
about Nintendo's strict licensing agreement and control of the 
industry were, for the most part, the ones that couldn't get in. As 
long as their games were selling, companies were happy to give 
Nintendo its large cut of the fortunes they were making. There was 
a slightly manic sense in the industry that anything would sell. 

But with the proliferation of licensees — over ninety in 1991 — 
something had to give. Although Nintendo spent a year or more 
and upward of $1 million to develop each of its games, smaller 
companies couldn't afford that. They used their limited resources 
to buy cartridges from Nintendo and for marketing and packaging. 
Not much was left for development. The result was an increasing 
number of boring games. 

To curtail this disastrous flood of the market, Hiroshi Yamauchi 
modified the agreements with third-party licensees to limit the 
number of games they could release each year. Companies, he 
figured, would spend more to develop better games, since more 
would be riding on each one. Licensees, however, were incensed. 
Who was Nintendo to tell them how many games they could re- 
lease? There were rumblings of discontent — out of earshot of Nin- 
tendo's executives — about unfair restraint of trade. 

Tensions among licensees grew because of the increased compe- 
tition. For part of 1990, Enix's "Dragon Quest 4" accounted for 25 
percent of the entire Famicom software business in Japan. Amid 
the success stories there was a growing number of disasters. 

When the licensees fought one another, it played into Hiroshi 



INSIDE THE MOTHER BRAIN 71 

Yamauchi's hands. In the industry, he said, there was room for 
"one strong company and the rest weak," and he manipulated the 
industry to make certain that Nintendo remained the one that was 
strong. 

The licensees were in fear that any criticism of Nintendo would 
get back to Yamauchi. "They feared him like a marionette fears 
the puppeteer," says one distributor. "If a company upset Nin- 
tendo, he could cut the strings." 

The chips that were the heart of the Famicom cartridges were in 
short supply during the years when consumer demand was soaring 
(from 1988 through late 1989) and Nintendo was obliged to ration 
cartridges. The company claimed to do the allotting fairly and 
without bias, but licensees knew better. "Nintendo has succeeded 
by monopolistic practices and intimidation," said one company 
executive. "We all were intimidated. Like a god, Yamauchi wielded 
power." 

Nintendo anticipated that renegade companies unwilling (or un- 
able) to become licensees would figure out ways to manufacture 
Famicom games on their own. To stop them, Masayuki Uemura's 
engineers had incorporated circuitry inside the Famicom that 
would reject non-Nintendo games. Periodically they modified the 
code inside new Famicoms so that only Nintendo-approved games 
could play. 

Nintendo also deterred companies from releasing unapproved 
games through its control of the distribution channels. It was al- 
most impossible for an outsider, against Nintendo's wishes, to get 
distribution. Wholesalers refused to carry unauthorized products 
for fear of being cut off by Nintendo. No distributor would risk 
alienating Hiroshi Yamauchi. A tacit threat pervaded: Yamauchi 
would crush any company that opposed him. 

A small Japanese software company called Hacker International 
didn't have the capital to become a licensee. Moreover, Hacker 
made video games that included nudity and sex. Hiroshi Yamauchi 
allowed brutal violence in his games but forbade pornographic 
content. He felt that "unclean, dirty" games would tarnish Nin- 
tendo's reputation. 

Hacker's engineers dismantled Famicoms and figured out ways 
to make games that would work on them. When Nintendo changed 



GAME OVER 



the circuitry, Hacker's techies found ways to get around the 
changes. Further, the company circumvented Nintendo's lock on 
the distribution chain by selling its games by mail. It didn't pay 
royalties or manufacturing costs to Nintendo, so it could make a 
healthy profit on relatively small sales. It sold 30,000 to 50,000 
copies of many of its games, hardly enough to threaten Nintendo. 
Nonetheless, Yamauchi decided to wage war on Hacker. 

The magazines devoted to Nintendo games, Nintendo bibles for 
millions of kids, sold more than any other magazines targeted to 
young readers. They were published by independent companies, 
but they were in fact completely dependent on Nintendo. NCL 
provided much of the editorial content of the magazines in the 
form of tips from game designers (where to find the whistle in 
"Super Mario 3"; how to fight Ganon in "The Legend of Zelda"), 
so the publishers did whatever Nintendo asked. NCL was allowed 
to review articles before publication, and it dictated when the mag- 
azines could write about games. The magazines gave Nintendo 
editorial control because it was the source of the insider informa- 
tion for the games; without it, the magazines were sunk. 

To reach avid Nintendo players, Hacker placed ads in Family 
Computer magazine, the largest publication devoted to Famicom 
games. A day after the first ad appeared, Hacker received notice 
that its ads would no longer run. Even ads that had been paid for in 
advance were canceled. In the subsequent issue of Family Com- 
puter, the magazine's editors issued an apology to Nintendo. Un- 
usual as this was, it wasn't enough to appease Hiroshi Yamauchi. 
Five top managers of Takuma Shoten, the company that published 
Family Computer, rushed to Nintendo to personally apologize. 
Yamauchi gave them a brief audience, during which the five men, 
heads bowed, vowed that no such breach of Nintendo's trust would 
occur again. 

The message was unambiguous: Hiroshi Yamauchi had a com- 
plete lock on Japan's multibillion-dollar video-game industry. It 
was felt by retailers, publishers, distributors, wholesalers, licensees, 
subcontractors, suppliers, and many others in businesses that were 
both integral and peripheral to Nintendo. 

One of the original licensees, Namco, was run by Masaya 



I N S I DE THE MOTH ER B R Al N 73 



Nakamura, who had been lord of the industry for many years, well 
before anyone had heard of Hiroshi Yamauchi. 

Notoriously vain, Nakamura stamped his feet and ranted and 
raved in order to get his way. In one deal he passed up a huge 
windfall because it would have appeared that he was concerned 
about money more than principle. No one was fooled: power was 
Nakamura's obsession. A slight man who wore large metal-rimmed 
glasses, he founded Nakamura Manufacturing Company, which 
made coin-operated kiddie rides, in 1955. He entered the game 
business in the 1970s and changed the company's name to Namco, 
soon becoming the number-one video-game company thanks to 
one phenomenally successful game: "Pac-Man." A joystick con- 
trolled "Pac-Man," a hungry yellow dot that raced through mazes, 
gobbling up whatever was in its path. Enemies that looked like 
gumdrops appeared from nowhere, intent on eating "Pac-Man" 
before it ate them. 

Pacmania struck worldwide when Namco licensed the game to 
companies in the United States and Europe. In America, "Pac- 
Man" made the cover of both Time and Mad magazines. A song, 
"Pac-Man Fever," topped record charts, and a Pac-Man cartoon 
was a popular Saturday morning children's television program. 
"Pac-Man" (and "Ms. Pac-Man," "Baby Pac-Man," and "Super 
Pac-Man") brought Nakamura hundreds of millions of dollars. 
(Nakamura awarded the engineer who came up with the game a 
piddling $3,500. Disgusted, the man left the video-game business.) 

Soon after Nintendo's Famicom system was released, Nakamura 
instructed a group of his managers to see what it would take to 
enter the Nintendo market. They inquired and were told that no 
outside companies could produce games for the system. When that 
restriction changed, however, Namco was the first company to be 
contacted. 

A meeting was set up between the two bosses. Hiroshi Yamauchi 
formally greeted Nakamura, and they agreed to work together. 
Nakamura would profit by selling his games, including "Pac-Man," 
to Nintendo players. At the same time, it was significant for 
Yamauchi to have as his first licensee the industry's dominant com- 
pany. Nakamura expected, and received, favorable terms — cer- 
tainly more favorable than later Nintendo licensees. 



GAME OVER 



In 1989, Namco's original five-year contract expired. Feeling 
that he and Yamauchi were equal, Masaya Nakamura expected 
that the renewal of the contract would be a mere formality. 
Yamauchi, however, used the opportunity to humble Nakamura. 
Yamauchi had decided that all the agreements with licensees were 
going to be identical and there would be no exceptions. 

When this decision was communicated to Nakamura, he ex- 
ploded. Namco was earning 40 percent of its sales from Nintendo 
games, but Nakamura would not acknowledge that Yamauchi was 
the stronger. "All of a sudden Mr. Yamauchi was king," a 
Nakamura associate says. "Mr. Nakamura did not want to observe 
the rule created by Yamauchi. It was a slap in the face. It was 
unpardonable." 

Nakamura did what no other licensee dared. He spoke out 
against Nintendo. 

It began with an interview he gave Nippon Keisai Shimbun {Ja- 
pan Economic Journal), He chose his words carefully: "The game 
industry is still new. I want it to grow soundly," he said. "Nintendo 
is monopolizing the market, which is not good for the future of the 
industry. . . . Nintendo should consider itself the leader of the 
video-game industry and accept the responsibility that goes along 
with it." He said that there was no competition in the industry, and 
that companies kept silent because Nintendo was too strong; to 
question Hiroshi Yamauchi when their businesses depended on 
Nintendo was suicide. 

Everyone in the industry in Japan wondered if this was exactly 
what Nakamura had just committed. 

In an interview, Hiroshi Imanishi said, "Namco has profited 
generously from the privileges awarded it by being the first li- 
censee," but these privileges would be "omitted" in the future. 
Nakamura, in response, announced that Namco was developing 
games for Nintendo's competitor, Sega, which had released a sys- 
tem called the Megadrive. It was a futile gesture; Nintendo, with 
95 percent of the market, was invulnerable. 

Nakamura filed a lawsuit in Kyoto District Judiciary charging 
Nintendo with monopolistic practices. Hiroshi Yamauchi, in Zaikai 
magazine, dismissed it. "Frankly, Namco is envious of us. . . . If 
they are not satisfied with Nintendo and the way we do business, 



INSIDE THE MOTHER BRAIN 75 

they should create their own market. That is the advantage of the 
free market." Before long, Nakamura withdrew the suit. 

"Mr. Nakamura suffered the anguish of the defeated king," his 
colleague says. "The biggest blow was to have to crawl back to 
Yamauchi — the defeated king accepting that he must now be a 
courtier." 

Nakamura sullenly instructed his staff to accept Nintendo's con- 
tract; he could not afford to continue without a Nintendo license. 
Namco's surrender was felt throughout the industry. If Masaya 
Nakamura had not been able to stand up to Hiroshi Yamauchi, no 
one could. Yamauchi's dominance was no longer questioned. 

On February 21, 1986, after two major delays, Nintendo had 
released a new product called the Disk System, the "new media of 
family computers," the company boasted. The system was a disk 
drive for the Famicom that attached to the hidden connector in the 
machine's belly. With it, the Famicom could run software on 
credit-card-size magnetic diskettes instead of the traditional bulky 
Famicom cartridges. 

The Disk System was a large investment, 15,000 yen (more than 
$100), but Nintendo made it seductive. Games would be better, it 
promised, since disks had more memory capacity than cartridges. 
They also would be cheaper. Famicom cartridges originally cost 
about 2,500 yen. That figure doubled by 1985 to 5,000 yen, almost 
$40. "Dragon Quest 4" sold for more than $80. Disk System games 
would be only 2,600 yen, about $20. 

The biggest advantage to the Disk System for consumers was 
that the diskettes could be reused. It protected customers who 
bought games they didn't like or ones they grew tired of. Machines 
called Disk Writers, sort of like jukeboxes, would be set up in toy 
and hobby shops throughout the country. Instead of a menu of 
songs, the Disk Writer would have a list of the latest games. A disk 
card would slip into the Disk Writer and the existing program 
would be replaced with a new selection. The fee for a rewrite 
would be a mere 500 yen. 

In an expensive ad campaign, Nintendo announced that some of 
the best new games would be available only for the Disk System. It 
said there would be 10,000 Disk Writers in retail outlets in the first 



76 GAME OVER 

year. Half a million Disk Systems sold in three months, almost 
2 million for all of 1986. 

There was dissatisfaction with the system, however. Licensees 
hated it. They had to determine whether to sell games in cartridge 
or disk form — or both. Nintendo charged them an ample fee to 
convert their games to disk, and the returns were much lower than 
on cartridge games. Nintendo required the licensees to sign a new 
contract if they wanted to make Disk System games, too, and it 
included new restrictions. Nintendo not only determined which 
games could be released on disk but, most galling, retained half 
ownership of the copyrights to all Disk System games. Copyright to 
the licensees' games was one of the very few things Nintendo didn't 
have up to that point. 

There were other problems. Semiconductor technology im- 
proved and prices dropped, so Nintendo disks actually had less 
storage capacity than cartridges. Retailers complained that Disk 
Writers took up too much space in their stores. 

By 1990, 4.4 million Disk Systems had been sold, far less than 
Nintendo had projected. The company backed off on its promise 
(threat) to release games only on disk. "Super Mario Bros." was 
supposed to have been a disk game, but it came out on both disk 
and cartridge. The best games were available only on cartridges, so 
many Disk Systems fell into disuse. The system was not a resound- 
ing success, but the sale of 4 million pieces of hardware at over 
$100 each can hardly be described as a failure. 

Yamauchi had loftier expectations for another new venture, 
launched in 1988. It would, he believed, reposition NCL. Nintendo 
would no longer be a toy company; it would grow to be a communi- 
cations corporation, among the ranks of Japan's largest company, 
Nippon Telephone and Telegraph (NTT). 

The plan hinged on something called the Family Computer 
Communications Network System. At its center was the Famicom 
and another hundred-dollar piece of equipment that connected to 
it, the Communications Adapter (a modem), which allowed the 
Famicom to hook up to a telephone line. 

A special cartridge transformed the Famicom into a terminal 
that could "talk" to other terminals or to mainframe computers. 



INSI DE THE MOTHER BR AIN 77 



At its most basic, kids could play video games— such as Henk 
Rogers's go game— with other players throughout Japan without 
leaving home. As significant as this was, it allowed for extraordi- 
nary new uses beyond games. The network was an appliance of the 
future, Yamauchi believed — one day as pervasive as the telephone 
— with Nintendo technology at its heart. 

The Family Computer Communications Network System, ac- 
cording to an NCL corporate report, would "link Nintendo house- 
holds to create a communications network that provides users with 
new forms of recreation, and a new means of accessing informa- 
tion." In a speech to his employees, Hiroshi Yamauchi expounded 
on this vision. "From now on, our purpose is not only to develop 
new exciting entertainment software but to provide information 
that can be efficiently used in each household." 

Yamauchi saw that the video-game business in Japan was huge 
but not unlimited, partly because there were only so many house- 
holds (with kids) that were potential customers. Communications 
was a bigger industry, virtually limitless. Other companies had 
sought to hook up households via telephone lines and computers, 
including NTT, but none had what Nintendo had: computers sit- 
ting in one third of the country's homes. 

If Yamauchi succeeded in connecting a small percentage of the 
Nintendo households, it would be— instantly— the largest such 
network in Japan. Games, Nintendo's stock in trade, were only the 
door in. The network would offer a spectrum of business and 
services that would all be provided and/or licensed by Nintendo. 
Like any computer network carrier, Nintendo could charge cus- 
tomers for on-line time (the time that they used the system) while 
also charging the information and service providers for access to its 
customer base. 

In Nintendo's 1989 annual report, Yamauchi summed up his 
vision: "We believe that the arrival of the high-information age has 
brought about a new opportunity for people to consider what vital 
information really is, and what information they really want. By 
employing the Nintendo Family Entertainment System as a domes- 
tic communications terminal, utilizing regular telephone lines, and 
the establishment of a large-scale network which to this point has 
been inconceivable, we plan to provide a vital supply of informa- 



GAME OVER 



tion for the domestic lifestyle in the fields of entertainment, fi- 
nance, securities and health management, to mention but a 
few. ..." 

An agreement was reached between NCL and Nomura Securi- 
ties Co., Ltd., the largest Japanese brokerage firm. Families would 
be able to use the Famicom to buy, sell, trade, and monitor stocks 
and bonds. After Nomura, the Daiwa and Nikko brokerage houses 
signed up. 

It was only the beginning. Nintendo could make commissions or 
fees on home banking, shopping, and airline ticketing done on the 
Network. NCL could charge for information such as movie re- 
views, news, and recipes. 

The network would also be a pipeline into Nintendo homes — a 
direct way to advertise new games and other new products. The 
Super Mario Club was formed so that Nintendo distributors across 
Japan could access information about games (including reviews) 
on-line. 

Yamauchi approved a multimillion-dollar budget for advertising, 
and he personally met with representatives of the brokerage firms 
and banks to convince them to work with Nintendo. In spite of the 
chairman's intense personal commitment, the network had a slow 
beginning. There were difficulties installing and maintaining it. 
Information arrived in garbled form, and phone lines were cut off. 
The technical problems were solvable, but there were roadblocks. 
One was convincing adults to take the Famicom seriously enough 
to use it for stock monitoring and banking. Beyond that, all home 
networks together were attracting only a limited audience. People 
either found that banking and dealing with stocks were just as easy 
to do in more traditional ways or they resisted the newer technol- 
ogy. There was another obstacle: families didn't want their tele- 
phone lines tied up for long periods of time. 

Only 15,000 to 20,000 customers used the stock-brokering ser- 
vices. Fourteen thousand customers used the network for banking. 
Three thousand businesses signed up for the Super Mario Club. 
The total number of households with Communications Adapters 
was 130,000. 

The low number disappointed Yamauchi, but he never admitted 
that he had made a mistake. "It is," he said in 1991, "just a matter 



INSIDE THE MOTHER BRAIN 79 



of time." New services brought new customers: soon you could buy 
stamps from the postal service, get odds and bet on horse races, 
and even exercise (the Bridgestone Tire Company used the 
Famicom fitness program for its employees). "When the people 
are ready for it," Yamauchi continued, "we have the Network in 
place." 

The network's slow start and the problems with the Disk System 
didn't impede Nintendo's continuing growth. Other companies 
bringing in sales as high hired hundreds of new employees, but 
Nintendo maintained a streamlined operation. There were 200 
people in research and development, 350 in administration, 180 at 
the main factory, and another 130 at the plant in Uji. Thousands of 
people worked for Nintendo's subcontractors, but NCL grew with- 
out major capital expenditures. 

Without large numbers of personnel and gigantic plants, Nin- 
tendo could shift gears more easily. "We're not building factories 
that are tied to any specific technology," an executive said. "That 
differentiates us from 98 percent of the companies in consumer 
marketing today. We're far more flexible and far more responsive." 

Throughout the 1980s, the number-one Japanese corporations, 
according to an independent rating by the Japan Economic Jour- 
nal, were, alternately, Toyota and Honda. They were the best run, 
they performed best on the stock market, and they made the most 
money per employee and the highest overall profits. For 1989, 
however, the magazine announced that the number-one company 
was Nintendo. The company's ascension to this pinnacle was no 
abberation; the early 1990s continued to see Nintendo's economic 
dominance in Japan — with no slowdown in sight. And Japan was 
only the beginning. 



\ 



COMING TO \ v 

AMERICA ^ 



Minoru Arakawa's respected Kyoto family had been in the textile 
business for four generations. The company imported quality silk 
from China and cotton from the West and sold them to producers 
of linens, kimonos, yukata y and Western-style garments. The busi- 
ness had grown steadily into one of the largest in Japan and the 
Arakawas had invested in prime real estate throughout the most 
expensive section of Kyoto. 

Waichiro, Minoru Arakawa's father, managed Arakawa Textiles 
diligently. Though not the shrewdest of businessmen, he ran his 
thousand-employee company with steadiness and efficiency and 
was satisfied with modest but consistent profits — in the neighbor- 
hood of $5 million to $6 million each year. Waichiro Arakawa 
didn't believe in debt or rapid growth. Instead, he was concerned 
with the fine quality of Arakawa products and with maintaining his 
good relationships with his suppliers and customers. 



COMING TO AMERICA 81 



The family was aristocratic and deeply grounded in tradition. 
The tea ceremony was important in the Arakawa home. Neighbors 
and friends came by for formal visits. Waichiro did make a few 
accommodations to Western influence— he often wore a suit and 
tie — but the ancient home was in most ways as it had been for the 
past hundred years. 

Minoru's mother, Michi, who dressed in kimono tied with an 
obi, a wide silk sash, and wooden clogs called geta, was from a 
family even more highly regarded than her husband's. The former 
Michi Ishihara was a descendant of the eighth-century emperor 
Uda and, after him, the first mayor of Kyoto. Her father had been 
a prominent member of the Japanese Diet. The Ishiharas had 
amassed a great deal of land that supported many families in 
sharecropping arrangements. When Michi Ishihara and Waichiro 
Arakawa married, the combined land holdings of the two families 
equaled approximately a fifth of Kyoto. 

Michi Arakawa was an artist who spent afternoons in the family 
garden or in her studio, where she sang while painting. Her paint- 
ings hung on the walls of the family home alongside Picassos, 
Cezannes, and Renoirs. 

The Arakawas had high expectations for their three children, 
who were constantly reminded that their position— and their fami- 
lies' names— came with responsibility. The children were raised to 
be soft-spoken, conscientious, and impeccably mannered. 

Ttadition determined the paths of two of the Arakawa children. 
As the eldest son, Shoichi was to take over the family business. He 
joined Arakawa Textiles after he graduated from college. His sis- 
ter, too, did as she was expected— she got married (to a professor 
of medicine). 

There was, however, no preordained course for Minoru. Some- 
times second sons followed their elder brothers into the family 
business, but there was no rule. Counseled by his parents to do 
what would make him happiest, Minoru anguished over a career 
choice. His father offered simplistic advice: "Be unselfish, do 
something for others." Looking back, Minoru laughs. "I don't 
think I am that good," he says. 

He entered Kyoto University in 1964 and took general courses 



GAME OVER 



until his third year, when he settled on a major in civil engineering, 
in which he went on to earn a master's degree. He graduated high 
in his class, but with no idea what to do next. 

Minoru's family wealth put him in a privileged position. "It is 
difficult when you do not have to work," he says. "You have to 
think. It sounds easy, but sometimes it is not. I struggled to know 
why we are here and how we should best spend our lives." 

Arakawa decided to look for answers abroad, away from the 
protected, insular world of Japan. He was accepted into the gradu- 
ate civil engineering program at MIT, and headed to Boston sev- 
eral months before the school year began. There he bought an old 
Volkswagen bus and set out on a journey through America, choos- 
ing local roads as he crisscrossed the country. Allotting himself five 
dollars a day for expenses, he camped in state parks, national 
forests, and parking lots. "Each state is a different country," he 
says. "The people were like nothing I knew." 

The year of his adventure, 1971, was a turbulent one in the 
United States because of the antiwar movement. Arakawa watched 
from the sidelines. He had been at demonstrations that turned into 
skirmishes between radical students and police at Kyoto University 
in 1968, but he admits, "I was throwing stones without really un- 
derstanding what was going on." This time, in America, Arakawa's 
eyes were open to larger issues: the war in Vietnam, economic 
inequities, and racism. 

In the towns he passed through he talked, as best as he could 
with his stilted English, to people he met in cafes, bookstores, and 
parks. He was fascinated by all the ways people chose to live. By 
the time he got back to Boston with 15,000 more miles on the bus's 
odometer, his mind was spinning with insights and even more 
questions than he had started out with. 

Years later, Arakawa's colleagues in business would find it ironic 
that such soul-searching preceded his heading up a company that 
would be accused of everything from unfair restraint of trade to a 
failure to hire minorities. In a sense, however, his later success was 
partly rooted in that journey through America. After having been 
raised amid the tended gardens and peaceful temples along 
Kyoto's narrow streets, in cloistered tradition where conformity 
was valued and expected, he was on his own, six thousand miles 



COM ING TO AMERICA B3 



from home, in the middle of America, where the young men and 
women he met were driven by individualism and independence. 
He was excited by it and felt, in many ways, not unlike them. "You 
must find what is your own, what you are good at," he says. "If you 
can find that and choose a goal you believe in and work to conquer 
it, you get the most satisfaction. There was nothing grand in what I 
found for myself. Still, it is a valuable view of life: to set your own 
sights. Then to do what is necessary to get there." 

Arakawa found a place to live in Cambridge with a Harvard 
student who became his best friend. He continued his study of civil 
engineering, although he still had not determined how he would 
use his expensive education. After a year and a half, he earned a 
second master's degree in 1972. 

On campus one afternoon he met a group of young Japanese 
businessmen who were visiting the United States as representa- 
tives of a trading company. Over beers, the men boasted about 
their jobs. There was an explosion of employment in Japanese 
trading companies that were doing business all over the world. 
Their work, they said, was stimulating. It involved financing, ac- 
counting, law, engineering, design, and even politics and psychol- 
ogy. There was a lot of travel, and they were given a great deal of 
responsibility and freedom. All of that interested Arakawa, who 
decided to try to find work with a trading company. 

Leaving Boston was bittersweet. Arakawa had made close 
friends in America, and yet he was eager to return to Japan. 

He had interviews with several trading companies in Osaka and 
Tokyo and was offered a position with Marubeni, a company that 
developed hotels and office buildings around the world. He moved 
to Tokyo, near the company's headquarters, and began an appren- 
ticeship. He leased an apartment, and the woman he was dating 
moved in with him. 

Arakawa returned to Kyoto to see his family at Christmastime, 
bringing along his old roommate from Cambridge, who happened 
to be visiting Tokyo. The two men accompanied Minoru's parents 
to an annual society ball, where the elite of Kyoto high society 
turned out each season. Everyone knew everyone else in that 
small, select circle. Before they arrived, Minoru warned his friend 
that the ball would probably be a bore. He didn't count on meeting 



BA GAME OVER 



Yoko Yamauchi, an elegant and exceptionally pretty woman. Her 
face was self-assured and her eyes calm. Her satiny black hair was 
pulled back. When she smiled, her left eyebrow arched magnifi- 
cently. She said she didn't like dancing, but she danced a great deal 
that night. 

As a child Yoko butted heads with her family. Her great-grand- 
mother Tei, who ran the household, scolded Yoko for playing 
under the eaves of the old house and called her down from the 
high branches of the trees. Tei, who was opinionated and overbear- 
ing, made most of the decisions about Yoko's education and disci- 
pline. 

Yoko's mother was invisible during those years. Michiko had 
had a series of miscarriages after Yoko was born and she was often 
ill in bed. It was seven years before she had other children, a 
daughter named Fujiko and then a son, Katsuhito. Once she had 
regained her health, Michiko was more involved with her children, 
and she and Yoko sat together and talked for hours at a time. 
Much of the talk was about Hiroshi Yamauchi. 

Yamauchi terrified his children. They hated Nintendo, for they 
saw how it consumed him. The only attention he paid to his daugh- 
ters and son was to exercise his strong will and issue edicts. He laid 
down the law at home, enforcing a strict curfew. Yoko had to be 
home at the dinner table at six, although Yamauchi himself was 
absent on many of those evenings. 

In his late thirties, Yamauchi was suavely handsome, a cigarette 
always dangling from the corner of his mouth. Even after he sold 
his love hotel, he was a familiar face among the Kyoto demimonde. 
Michiko said nothing, but the children resented him bitterly. 

In 1970, on her twentieth birthday, Yamauchi shocked Yoko 
when he announced that she was going out on the town with him. 
She dressed up and accompanied him to a cabaret, a sikikake, 
where five geishas attended them, serving drinks. The women obvi- 
ously knew him very well. Hiroshi toasted Yoko's coming of age, 
but when it got late, he sent her home in a taxi. He didn't come 
home until dawn. 

Yamauchi was especially tough on his daughters. Young 
women, he felt, could not be trusted. He saw what they did 
when they were out on their own late at night; many of the girls 



COMING TO AMERICA B5 



he met were Yoko's age. Likewise, his promiscuity, his temper, 
and his absences made Yoko wary of men. She decided that if 
she ever settled down, it would be with a man who had nothing 
in common with her father. 

After Yoko's twentieth birthday, her parents considered arrang- 
ing a marriage for her, as was still sometimes done in Japan. 
Michiko tried a modern approach. She and other parents con- 
spired and planned dates for their children. Yoko agreed to go 
because it was a chance to get out of the house, but she had no 
intention of becoming involved with anyone. 

During Yoko's senior year at college, where she was studying 
English history, a friend asked her to a society Christmas ball. Her 
father, contemptuous of Kyoto's old monied families, would prob- 
ably have forbidden her to attend, but he was out of town. Michiko 
gave her consent. 

The ballroom was festive with decorations and the music of a 
small orchestra. Yoko watched from a hallway, where she sipped 
from a cup of punch. 

A man approached her and asked her to dance. She could tell he 
was tipsy and she wanted to refuse, but it would have been rude. It 
was difficult to maneuver in the tight dress, particularly in the high 
heels she had chosen. 

Doing her best to keep up with the man as he guided her awk- 
wardly around the dance floor, she tried to catch the eye of a friend 
of her mother's, who was dancing nearby. The woman glanced in 
her direction, caught Yoko's SOS, and cut in, dancing off with 
Yoko's partner and leaving Yoko in the arms of the young man she 
had been dancing with. 

Mino Arakawa was dressed in a wide-lapelled tuxedo. He was 
tall and thin yet athletic. He wore his shiny black hair, which swept 
and rolled, wavelike, to one side, slightly longer than most. He and 
Yoko had never met, although they knew about one another. 
Yoko's school friend was Minoru's cousin; she had raved about 
him, saying he was handsome and very bright. It struck Yoko im- 
mediately that he was different from the Kyoto men she usually 
met. He was cosmopolitan, educated in America, sophisticated, 
and funny. 
Minoru and Yoko talked and danced through the evening. They 



SB GAME OVER 



laughed about the fact that they had almost become cousins; her 
aunt had been engaged to his uncle in an arranged marriage. The 
wedding never happened because, scandalously, his uncle had bro- 
ken off the engagement. It was an unforgivable embarrassment to 
both families, who had gone so far as to exchange gifts, the tradi- 
tional way of validating an engagement. The Arakawas' gift was a 
treasured family heirloom, a family crest intricately embroidered 
onto silk. Tei Yamauchi, furious because of the humiliating breach 
of etiquette, cut the Arakawa crest in half, returning it in 
pieces. 

Following the Christmas ball, Mino traveled by train back and 
forth between Tokyo and Kyoto so he could see Yoko. They took 
walks together and met for lunch. Soon Mino informed his girl- 
friend in Tokyo that she had better move out; he was becoming 
seriously involved with someone else. 

Yoko and Minoru enjoyed each other immensely, but they were 
apprehensive about their families' opinion of the match. The 
Yamauchis may have been almost as wealthy as the Arakawas, yet 
there was a wall between their families. It had already stopped one 
marriage; the mutilated Arakawa crest was a reminder. 

Not only was there the question of the standing of the 
Yamauchis in Kyoto society, but Hiroshi Yamauchi had only dis- 
dain for people like the Arakawas. The upper crust of society was, 
he felt, conservative and pompous. The Arakawa family was in one 
of the most respected businesses, and their fortune had been 
amassed over many generations. Yamauchi, on the other hand, had 
become the president of his family's company when he was a brash 
twenty-one. He was beginning to make it a success, but the men 
who ran the established businesses of Kyoto shunned him. When 
Yamauchi was able to get into one of their clubs, the older men 
either ignored him or were openly contemptuous. His style be- 
trayed the distinction between them: Yamauchi showed his coarse 
emotion to anyone within earshot — his rages were routine— while 
the Arakawas were always dignified, revealing nothing. 

Yoko Yamauchi consulted her mother, who said she would do 
her best to help. Over the coming weeks, Michiko pleaded Yoko's 
case. She told Hiroshi that the Arakawas were known to be differ- 



COMING TO AMERICA B7 

ent from the other aristocratic families; they were a well-respected 
family and he should give the young Arakawa boy a chance. 

Michiko had Yoko invite Minoru to dinner at the Yamauchi 
home. Because of the terrifying portrait Yoko had painted of her 
father, Arakawa felt as if he were preparing to visit Don Corleone. 

Dressed in a conservative suit, he arrived at the Yamauchis'. 
After the introductions were made, he joined the family at the low 
dining table, where Michiko and Yoko served the meal. Hiroshi sat 
back in his chair and studied his daughter's suitor. 

The evening wore on and Yamauchi fired questions at Minoru as 
if he were conducting a job interview. He had to be convinced that 
Minoru was not a heavy drinker or a playboy. 

"You went to Harvard, eh?" Yamauchi asked. "That is a good 
school." 

Mino politely explained that he had gone to MIT. 

"I have never heard of it," Yamauchi said. 

Yoko and Mino had to convince him that MIT was okay too. 

After the meal, the family withdrew to the living room for tea. 
There, Yamauchi looked at Arakawa and said, without emotion, 
"If you are going to marry my daughter, you should marry 
quickly." 

Yoko and Minoru exchanged glances, and the young man nod- 
ded politely. "Yes, sir," he said. 

Hiroshi ribbed Arakawa, saying he was a good choice because a 
woman shouldn't marry a man who was too good-looking. "If you 
have a nice-looking man, the girls won't leave him alone," he told 
his daughter. 

At the end of the evening, after Minoru had gone, Yamauchi let 
on that he had actually been impressed by the Arakawa family all 
along. He told his wife, "Arakawa is such a fine man that no son of 
his could be bad." 

Soon afterward, in March, Minoru officially asked Yoko to 
marry him. She was in love with him but worried that she should 
wait. Ultimately there was something about Minoru that convinced 
her. His sense of humor and contemplative nature were part of it. 
She was comforted that he was a second son who would never have 
to enter a family business. Nervously, she finally told him that she 
would marry him, and a wedding was planned. 



GAME OVER 



The wedding, in November, was grand. There was a ceremony 
under the massive, red-orange Heian Shrine in the park near the 
Yamauchi home. There were 350 guests, friends of both large fam- 
ilies (although the Arakawas' guest list was longer; Mino alone 
invited about fifty friends). An opulent dinner and champagne 
toasts in the luxurious ballroom of the Miyako Hotel followed the 
ceremony. 

The couple moved into a small house in the Ogikubo district of 
Tokyo, near Shinjuku, close to Marubeni's headquarters. For Yoko, 
it was thrilling to be in Tokyo, away from her parents. She and her 
new husband were happy newlyweds, romantic. She imagined that 
their marriage would be like that of Mino's parents, who were still 
obviously in love after many decades together, taking walks to- 
gether in the evenings and treating each other with affection and 
respect. 

Yoko loved the tender and romantic attention she received from 
Minoru and believed that she had chosen wisely — he was as differ- 
ent from Hiroshi Yamauchi as imaginable. "It was like living with a 
boyfriend," she says. 

By the end of the idyllic first year, Arakawa's new job was taking 
more and more of his time. After a training period, he became 
involved in some of Marubeni's foreign ventures. During his sec- 
ond year he was placed in charge of some small projects that took 
him away from Japan for ten months out of the year. He flew off to 
Caracas, Toulouse, Diisseldorf, and Vancouver. He was excited by 
the travel and the experience he was gaining, but Yoko felt de- 
serted. "No one prepared me for this," she complained to her 
mother. 

When Mino was in Tokyo it was better, but there was little time 
for the couple to be alone. He worked long hours, and Yoko was 
often dragged to business-related dinners and cocktail parties. She 
found the obligations of a Japanese businessman's wife appalling. 
Wives, Yoko Arakawa found, had no identity; their place in the 
unofficial hierarchy depended on their husbands' position in the 
company. The first time she went to a wives' luncheon, Yoko sat 
down next to the assistant general manager's wife and was bluntly 
asked to move. "They all looked at me," she says. "They were 
thinking that Arakawa married the wrong person." 



COMING TO AMERICA S9 



When her complaints to her mother filtered back to Yamauchi, 
he called from Kyoto, fuming, berating her for having chosen 
Arakawa in the first place. He said she should divorce him. Yoko 
considered it, particularly when she had their first child, a daugh- 
ter, and Arakawa was thousands of miles away. It struck her how 
bad things had gotten when, one time, she went to Narita Interna- 
tional Airport to pick him up after a long absence and he passed 
right by her — they didn't recognize each other. 

Minoru came home one evening in 1977 and announced that the 
family would be moving to Vancouver for at least a year. His firm 
had challenged him to develop a large condominium complex 
there. With a $1 million development budget, he would be in 
charge of everything from negotiating for the land to working with 
architects to selling the units. He told Yoko that Vancouver was a 
great place to live. It was cold, foggy, and rustically beautiful. The 
move scared her, but Yoko thought they might have more time 
together if they left Tokyo and the competitive company headquar- 
ters and settled into a new place together. They talked excitedly 
about the move. 

The next night, Arakawa came home from work and told Yoko 
he had some bad news. Things had changed: he was going to 
Canada, but alone. The company was not allowing wives to go. He 
assured her he would send for her if it seemed the work in Canada 
would last, and in the meantime, he would be back and forth 
between Japan and Vancouver all the time. 

Yoko spent a sleepless night. In the morning, she dressed up and 
headed to Marubeni. She stormed into the office of her husband's 
boss. "If I don't go, our marriage is over," she said flatly. The man 
listened and then shook his head. He said emphatically that she 
should not go. She would be a drain on Arakawa; she would hate 
living outside Japan. But Yoko told him that she would file for 
divorce if Arakawa went without her; it would be the company's 
fault that their marriage had fallen apart. The manager argued 
some more, but he finally shrugged and capitulated. "But," he said, 
"I wouldn't bother bringing anything with you. You'll be back very 
soon." 

Yoko and Minoru left Japan with only their daughter, Maki, 
then three years old, and two suitcases. They arrived in Vancouver 



90 GAME OVER 



and checked into a hotel next door to a Denny's restaurant, where 
they ate greasy hamburgers and ice cream sundaes. "If this is 
America, I have made a big mistake," she said after one of these 
meals. She had smoked occasionally at home, but in Vancouver she 
acquired a three-pack-a-day habit. Frequently, she considered us- 
ing the credit card her father had given her for emergencies to buy 
tickets home for herself and her daughter. 

Saving his budget for real estate and construction, Arakawa, 
insisting that he and Yoko make it on their own, with no financial 
help from their families, felt he couldn't afford furniture or an 
exorbitant rent, so he relied on a trick he had learned when he was 
at MIT; he sublet the furnished home of a University of British 
Columbia professor who was on sabbatical. He bought a Honda 
Civic and drove to the new office every morning. He worked four- 
teen or more hours a day while Yoko, stuck at home, tried to begin 
a life in Canada. 

She had thought that she spoke adequate English but found she 
could barely understand most people she met. She studied the 
language by watching television and developed an accent decidedly 
reminiscent of Peter Falk's Columbo. She wanted to enroll in En- 
glish classes, but $10 an hour, the going rate, was too expensive. 
She hired an elderly Canadian woman to baby-sit for her daughter 
for $1.50 an hour and asked the woman to correct her English 
when she said anything wrong. 

Her English improved, but she complained to Mino that she was 
stuck at home. He surprised her one day with an old Chevy he had 
picked up for $700. He opened a bank account for her with a 
modest deposit and gave her a map of Vancouver. "You have 
money, transportation, and a map," he said, "You are on your 
way." 

Yoko was still miserable. Her first driving expedition resulted in 
a confrontation with the police. The Canadians in their neighbor- 
hood were impatient and rude. She had no friends, and she never 
saw her husband. Other than the baby-sitter, she spent time only 
with her daughter. 

A year went by. A second daughter, Masayo, was born. The 
professor whose home they had rented returned, so the Arakawas 
had to move. Mino didn't want to spend money on movers, so 



COMING TO AMERICA 



Yoko did all the packing and the two of them did the lifting and 
carrying. It was the first of eight moves they would make, from one 
professor's house to another, before buying their own home in 
West Vancouver. 

Arakawa's single goal at that time was to build the condos. Mar- 
ubeni was having financial trouble, and his successful execution of 
the project could help. It would also establish him as an important 
asset to the company. He portioned out his budget and began the 
development on prime land he had bought near Vancouver. He 
directed the clearing of the land, assisted in the designing and 
engineering of the complex, and oversaw the construction. When 
the first units were ready to be shown, Arakawa himself, occasion- 
ally with Yoko's help, worked as the agent. In order to sell one 
condominium he spent forty-eight hours applying a fresh coat of 
peach-hued paint for a prospective buyer. The exhausting efforts 
paid off when Arakawa began to bring in a healthy profit on his 
company's investment. 

At the same time, Arakawa was trying to extricate Marubeni 
from another Vancouver venture that was losing money. In a joint 
venture with a Canadian real estate company, a Marubeni subsid- 
iary had built a high-rise suburban condominium complex called 
Central Park Place. The 434-unit project was just completed when 
the real estate market in that area was falling off. The condos 
weren't selling, so Arakawa met with the Canadian partners to 
figure out ways to minimize the loss. It was a grim business for 
Arakawa, although one good thing came out of the experience. He 
met a man who would become a good friend— Phil Rogers, a tall 
Englishman with thinning blond hair and attentive blue eyes, who 
worked for the Canadian developers. 

Yoko ran up large phone bills talking to her mother in Japan. 
The family flew back to Kyoto for a visit after two years in 1979. 
After a family dinner one night, Yamauchi asked Mino to give up 
Marubeni and Vancouver. He wanted him to join Nintendo and 
open a manufacturing operation in Malaysia. Many companies in 
Japan's toy business had begun manufacturing their products in 
countries with cheaper labor. It was, Yamauchi told Arakawa, an 
opportunity he should not pass up. 



92 GAME OVER 

Yoko was mortified. She wanted nothing to do with Nintendo. 
Her father was married to the business. He brought home all his 
anger and frustration when things were going badly. Yamauchi 
himself blamed Nintendo for his chronic stomachaches. Through- 
out her childhood, the family had waited at home for him in the 
evenings, fearful of his moods. "We were all shaken by him," she 
remembers. "We all suffered." 

Although Mino worked just as hard as Yamauchi, Yoko wasn't 
under anyone's thumb. There was no way she would allow Mino to 
accept a job with Nintendo; Hiroshi Yamauchi would then be back 
in control of her life. 

Arakawa too was suspicious of his father-in-law's motives. "He 
decided I was very much like him," he says. "Or maybe he wanted 
to test me." Arakawa also had little interest in moving to Malaysia, 
which was Siberia as far as he was concerned. 

They left Kyoto without giving Yamauchi an answer, but Yoko 
never vacillated. In a conversation with her mother from Vancou- 
ver, she said that she was absolutely against her husband joining 
Nintendo. Michiko was so angry she refused to speak to Yoko for 
months. 

Arakawa was still immersed in his Marubeni project, which was 
becoming a great success. He had built a total of 350 condomini- 
ums and they were selling quickly. Marubeni had lost money on 
Central Park Place, but Arakawa's new project was bringing in 
healthy profits. He turned down his father-in-law's offer, and 
Hiroshi Yamauchi scrapped the idea of overseas manufacturing. 
However, he didn't give up on his plan to get his son-in-law into 
the family business. 

If Hiroshi Yamauchi had been much younger and had spoken 
English, he would have done it himself. It was his dream to go to 
the United States, to live abroad and succeed there. 

Yamauchi wanted to enter the American market, and he needed 
someone to manage the operation. Yoko had kept Michiko ap- 
prised of her husband's progress, and she, in turn, reported to 
Hiroshi. Hiroshi Yamauchi was impressed, not only by Arakawa's 
managerial and organizational skills, but by his perseverance and 
dedication. Yamauchi's son, Katsuhito, was too young and inexpe- 



COMING TO AMERICA S3 



rienced to be given much responsibility at Nintendo, and he had 
gone off to work for Dentsu, an advertising agency. That left only 
Arakawa, and the international experience he had gained through 
his job with Marubeni was invaluable. It was imperative that 
Yamauchi convince his son-in-law to run the American subsidiary. 

Minoru and Yoko Arakawa visited Kyoto again in early 1980. 
One night, the family had retired to the living room after a simple 
dinner at the Yamauchi home. As they settled into some wicker 
chairs, Michiko served glasses of Scotch. Yoko stared out the win- 
dow that overlooked the garden, where she had played in her 
youth. Now it looked like a painting behind glass. 

Hiroshi Yamauchi ran one of his delicate hands through his hair. 
Ignoring his wife and daughter, he turned to Minoru and began 
speaking softly, hesitantly. But soon he was ardent and emphatic, 
focusing his stare directly on his son-in-law. It took two hours for 
Yamauchi to outline his plan. 

Though he was expecting it, it nonetheless jarred the younger 
man when Yamauchi told Arakawa that the plan depended on him. 
Arakawa sipped his drink and looked over at his wife, whose jaw 
was firmly set. 

None of Yoko's misgivings about her father, none of her distrust 
or her fears about losing Mino to him, had disappeared, and she 
was worried because she could see that Mino was intrigued. 

Arakawa didn't doubt that Nintendo was doing well in Japan, 
but he wondered if Yamauchi was overestimating the company's 
potential for expansion. Now that Arakawa had helped strengthen 
Marubeni, it was difficult to consider leaving the company. On the 
other hand, Yamauchi insisted that Nintendo was the uncontested 
leader of an industry that was still in its infancy. 

He looked over at Yoko, who had finally come to enjoy life in 
Vancouver. She would fight him if he decided to do it. He looked 
at his father-in-law, who was pouring more Scotch into his glass. 
Yamauchi tugged at his soft trousers and leaned forward in his 
chair. 

The video-game business had potentials that no one had yet 
been able to exploit fully, he said. His substantial investments in 
research and development had paid off, as his engineers were 



94 GAME OVER 



learning to adapt proven, inexpensive semiconductor technologies 
for new kinds of products. "I don't see any limitations," he said. 

The offer was straightforward: Arakawa would not have to leave 
North America; Yamauchi now required the experience Mino had 
gained working there. And, he continued, Arakawa would be on 
his own, president of an independent subsidiary, generously 
backed by NCL. If he replicated in America even a small portion 
of NCL's growth in Japan, Arakawa would be the president of a 
substantial company. 

"Yoko and I will discuss it," Arakawa told his father-in-law as he 
and his wife wished Hiroshi and Michiko good night. 

Yoko saw that Minoru was becoming excited. Her independence 
from her father was suddenly in jeopardy; she envisioned herself in 
the middle of the inevitable battles that would arise between her 
father and Minoru. She was afraid the tension between the two 
men would strain her marriage. 

For Mino, the idea of starting a new company in an industry he 
knew nothing about was intriguing. "Yoko and I were both from 
rich families," he says. "We could have lived our lives without 
working, so money wasn't a motivation. When it isn't, something 
else must compel you." He tried to reassure Yoko, but she did not 
relent. "No matter how much you accomplish, it will be viewed as 
mediocre, because you will be thought of as the son-in-law," she 
said. She looked longingly at the view from their Vancouver home. 
She had made friends there. She had begun painting and taking art 
classes. Vancouver was a good community in which to raise her two 
daughters. Minoru, however, wanted to take the job and she finally 
gave in. "Okay," she said. "We will see." 

New York, the center of American finance and commerce, 
seemed to be the logical base for Nintendo of America. Yoko 
gritted her teeth when the Arakawas left Vancouver in May 1980. 

In order to lessen the blow, Minoru decided to make the trip 
east a family adventure. The day they left, the four of them driving 
south in a car packed with suitcases and toys (the small amount of 
furniture they had gathered was shipped by truck), Mount Saint 
Helens erupted. 

Volcanic fallout filled the sky with an eerie orange dust, destroy- 
ing the paint job on the car. The family retreated back into Canada 



COMING TO AMERICA 35 

and circled east, through the Canadian Rockies. Yoko thought this 
an inauspicious beginning. 

They arrived in New Jersey, where they rented a home in Engle- 
wood Cliffs. They carefully budgeted money earned from the con- 
dominium project; it was a matter of great pride to them that 
neither had ever asked for money from their families. Yoko had 
never used the credit card her father had slipped her, and she had 
never accepted money from her mother in spite of the phone calls 
from Kyoto in which Michiko pleaded, "Can't I at least send you a 
little something? Your father would never know." 

Yoko was Nintendo of America's first employee, helping 
Arakawa choose a location for an office in Manhattan. They 
rented a small suite in a high-rise at T\venty-fifth Street and Broad- 
way, on the seventeenth floor. Mornings, the two of them drove 
into the city together, dropping the children at a baby-sitter's on 
the way. 

Yoko supervised the opening of the office. She watched a truck 
pull up to the building's loading dock to deliver the office furniture 
and equipment they had ordered, all in cartons marked fragile. 
Truckers flung the boxes onto the sidewalk. 

When the construction workers arrived to renovate the place, 
she stood by speechlessly. One man who towered over her opened 
boxes of fixtures or screws, taking his time about installing them. 
This man would stop to wait for another to show up to connect 
fixtures to plumbing or electricity. 

The workers arrived sometime between 8:00 and 9:00 a.m. At ten 
they took a coffee break that lasted up to an hour, and at noon 
they broke for lunch. They were finished for the day at three or so. 
After days of this, she mustered up the nerve to politely question 
one of the men about it. "Welcome to New York," he said. 

Nintendo of America's first task was to break into the coin-op 
arcade business, which at $8 billion per year was, at that time, the 
largest entertainment industry in the United States — bigger than 
movies and television. Its customer base was decidedly narrow: 
mostly teenagers. 

Without a presence in America, Nintendo Co., Ltd., had only a 
limited ability to cash in on the boom. The arcade games it made 
and sold in Japan were licensed through a trading company to 



SB GAME OVER 

American companies. Nintendo saw only a fraction of the take 
made by the companies that sold their games directly in the mar- 
ket. 

Minoru and Yoko spent many evenings at video arcades. They 
looked over players' shoulders until it made the young kids ner- 
vous. "What the fuck's your problem, mister?" one kid in a Kiss 
T-shirt barked at Minoru. Arakawa asked him, "Would you like a 
job?" 

He watched kids stand in front of the machines, transfixed, their 
hands melded to controllers, their bony arms like umbilical cords 
joining human and machine. He asked the kids questions about 
what made a game good. Arakawa realized that the most success- 
ful games had something the players couldn't articulate. The words 
used to describe them were those usually reserved to describe 
forms of intimacy between people. It was as if the players and the 
game itself somehow merged. 

The other phenomena that made successful games were more 
obvious. They had to have immediate impact and exciting noise 
and graphics; a player had to be captivated within the first thirty 
seconds. There could be no letup in the intensity for two minutes, 
the time that one quarter lasted. If the players weren't engrossed 
by then, they left the machine for good. If the game snared them, 
the string of quarters to follow could have bought dinner for a 
family of four. 

Arakawa hired kids he met at video arcades. They worked in a 
run-down warehouse he rented in New Jersey. There were enor- 
mous rats, a loading elevator that worked once in a while, and 
loading-dock doors that always got jammed. There was no heating 
or air conditioning. In winter the place was damp and frigid, in 
summer a muggy, relentless oven. 

Coin-operated arcade games were shipped by boat from Japan 
to the port of Elizabeth, New Jersey. From there they were trans- 
ported to the warehouse. 

Since there were so few employees — a warehouse manager and 
a few kids — everyone helped out. When Mr. A., as the Americans 
called him (Yoko hated the nickname because it reminded her of 
the TV character Mr. T), wasn't making calls on customers, he 



COM I NG TO AMERICA 9 "7 



worked alongside the half-dozen young employees. He wore jeans 
just like the kids, and he put in as much effort as anyone. 

One of Arakawa's first tasks was to hire a sales team; Nintendo 
of America needed an entree to the large video-game operators 
and distributors around the country. He approached the pair who 
had been selling Nintendo's games in America for the past few 
years, Al Stone and Ron Judy. 

Stone, who had attended Lowell High School in San Francisco 
and then the University of California at Berkeley, had once set his 
sights on a career in professional baseball, although he had more 
of a football-player's physique — the square head and wide shoul- 
ders of a linebacker. After playing some minor-league ball in 
Reno, he finished college at the University of Washington, gradu- 
ating with a degree in finance and economics, and then tried selling 
sausages and representing a steamship line. Eventually he moved 
to Silicon Valley to work for Intel, the semiconductor giant. 

Stone had met Ron Judy when they were both at the University 
of Washington. They lived in the same fraternity house and be- 
came business partners, running the Business Week franchise on 
campus. On one occasion they bought a huge shipment of cheap 
wine that a local company was going to dump and sold it to stu- 
dents. 

Judy was a compact man with deep blue-gray eyes, eyebrows 
that seemed stenciled on, and a pencil-thin mustache. For fourteen 
summers, from grade school through college in Seattle, he had 
worked in his father's construction business. Most of his time was 
spent clearing land for interstate freeways. For a time he worked 
on the Alaska pipeline in fifty-degrees-below-zero weather, so that 
Chicago, where he headed later to finish his degree (at the Univer- 
sity of Illinois), seemed mild by comparison. 

After graduating in 1972, Judy moved to New York to consult 
for Chase Manhattan Bank on mergers and acquisitions. Then he 
moved to San Francisco to work for a small company that con- 
sulted with high-technology firms. He and Al Stone, then at Intel 
down the peninsula, got together sometimes after work to drink 
beer and mull over ideas. They agreed on two things: they were fed 



GAME OVER 



up with working for other people, and they wanted to make more 
money. 

They formed their first business in Seattle, a trucking company 
they called Chase Express. They managed a fleet transporting con- 
tainers from Seattle's piers when a friend of Judy's called from 
Hawaii with a proposition. He said it was a sure thing. Judy found 
himself at the air-freight dock of the airport, claiming a giant crate. 
He tried, unsuccessfully, to get it into the back of his station 
wagon. He finally gave up and tied it on the roof. 

Judy unpacked the crate in his living room. Inside was some- 
thing that looked like a cocktail table with a TV screen that faced 
upward, like a tabletop. It was, he had been promised, the latest 
thing in Japan, great for a lounge or pizza parlor, where customers 
stuffed in coins while they sucked down pizza and beer. A video 
game called "Space Fever" was played on the machine, and it was 
made by a company called Nintendo. 

Judy convinced a local hotel owner to let him put the game in 
the cocktail lounge, agreeing to a sixty-forty split of the take. It did 
fairly well, although one game wasn't worth the effort. His friend 
sent along two more tabletop games from Hawaii, explaining that 
all the big Japanese companies had representatives in the United 
States except for Nintendo. A trading company in Japan was buy- 
ing games from NCL and sending them to him in Hawaii, and they 
needed someone to bring them into the mainland. 

When the games arrived from Hawaii, Judy arranged to have 
them set up in another Seattle bar. The games made, in Judy's 
words, "obscene profits." It was enough to convince him and Stone 
to enter the video-game business. They formed a new company, 
Far East Video, and set out to sell Nintendo machines throughout 
the United States. They bought machines from the trading com- 
pany and tried to sell them to local operators or small distributors. 
In the process, they became masters at convincing airline-ticket 
agents to ignore baggage weight and size limitations so they could 
get their game machines on commercial flights. From Peoria to 
Phoenix, they begged taxi drivers to let them load the game ma- 
chines into the trunks of their cabs. Video games were so hot that 
even the bad games were selling. They bought the machines for 
less than $1,000 each, and customers were happily buying five or 



COMING TO AMERICA 99 

ten of them at roughly $1,500 each. Distributors sold them to 
operators for as much as $2,500. It made their backaches worth- 
while. 

Mino Arakawa contacted Judy and Stone in late 1980 and asked 
them to see him on their next trip to New York. The meeting 
coincided with Hiroshi Yamauchi's first visit to his new subsidiary. 
Yoko worried that her father couldn't avoid meddling; she feared a 
blowup. 

Although he timed the visit so that he could accompany 
Arakawa to an arcade-game industry trade show, the other reason 
Hiroshi came to New York was to check up on Yoko and his 
grandchildren. His wife had pressed him to go; she felt that Yoko 
was drifting away from them. She seemed distant on the telephone; 
she was working too hard; America was too far away. 

Soon after Yamauchi arrived in New York, he began to see that 
Michiko's perception was correct; something had changed. Yoko, 
however, was hardly unhappy. She seemed content and confident 
in a way that surprised him. In all the years she smoked, Yoko had 
never lit up in front of her father. Despite his lifelong habit, 
Hiroshi was part of the generation that held the double standard 
that smoking was unladylike. It never stopped Yoko from smoking, 
only from letting him know about it. 

Sitting in a Manhattan restaurant after dinner one night, Yoko 
turned to her father and asked nonchalantly, "Do you mind if I 
smoke?" He looked at her sharply, paused for one long moment, 
then pulled out his own pack and shook out a cigarette, offering it 
to her. She accepted it and leaned over to meet the match he held 
out for her. Nothing was said, but that moment was the start of a 
change in their relationship. Yamauchi saw for the first time that 
his daughter was a strong, independent woman. He also realized 
that he liked her very much. 

"Dad," she said as they walked through midtown Manhattan, "I 
know you're worried about how things are going here." She took a 
drag of the cigarette and continued. "But hold back a little longer; 
let Mino do it his way." 

Yamauchi said he would — for a while. 

One afternoon, Al Stone and Ron Judy came in to meet with 
Arakawa and Yamauchi at the Manhattan office. Arakawa did the 



GAME OVER 



talking, although Stone and Judy noticed that he frequently looked 
to Yamauchi. 

Arakawa said he intended to import Nintendo's arcade games 
directly to America and he hoped that Stone and Judy would work 
with his new company. From their perspective, it was a risk-free 
deal: they would remain independent and Arakawa would cover 
their expenses. Their per-game take would remain about the same, 
so they stood only to gain by the arrangement. 

Stone and Judy told Arakawa and Yamauchi that they could sell 
every game Nintendo made if the games were better. Games such 
as "Space Fever" and "Sheriff" did fairly well, but what they all 
hoped for was a killer game from NCL — a "Space Invaders" or a 
"Pac-Man." 

Yamauchi said nothing. He left New York repressing his intense 
urge to take over. There hadn't been even one conflagration with 
Arakawa. 

Judy and Stone took their contract to an attorney, Howard Lin- 
coln, of the Seattle law firm of Sax and Maclver. Lincoln had quite 
a reputation in Seattle. Someone said of him, "To call Howard 
Lincoln forthcoming would be an oxymoron — like jumbo shrimp." 
The thirty-eight-year-old attorney had the down-home affability of 
an old Kentucky colonel, but he was also capable of intimidating 
almost any adversary. And when he lost control, which was rarely, 
wise men and women got out of his path. He carried himself with 
effortless confidence and ease. When he spoke, he was jocular and 
warm; there was reassurance in his voice. He was dapper, almost 
preppy, and fox-sharp. 

Lincoln had intense, circumspect brown eyes, small for his face, 
and the flushed cheeks of an outdoorsman (his fishing buddies had 
given him the nickname Cato, after the Green Hornet's sidekick, 
for his reckless pursuit of king salmon). Every chance he got, he 
headed into the mountains or, at least once a year, up to Alaska to 
fly-fish in high-country rivers. He relaxed then, but at other times 
his neck muscles were taut and he held his shoulders high, as if 
ready to protect his face in a fight. It was one of the few signs that 
betrayed the quick thinking beneath his composure. 

Lincoln was born in Oakland, California, where his father was 
an executive with the Pullman Company, makers of Pullman rail- 



COMING TO AMERICA 1D1 

road cars. The elder Lincoln was a reserved man, hard of hearing, 
who was well liked in his community and by his employees. His 
wife was an elegant woman, delicate and gracious. 

Throughout World War II, the American government moved 
troops by the nation's railroads, which kept Lincoln's father partic- 
ularly busy. Howard remembers being taken, at age four or five, to 
visit trains carrying wounded soldiers who had been shipped back 
to San Francisco. 

Lincoln attended high school in the fifties. A skinny, short- 
haired boy, he dressed in short-sleeved shirts and cuffed pants. He 
was active in his local Baptist church and the Boy Scouts. In 1954 
he was a model for a Norman Rockwell painting that appeared on 
the Boy Scout calendar for 1956. A scoutmaster stood over a well- 
tended campfire near a bunch of scouts in sleeping bags. Lincoln 
was the blond boy with the angelic smile. 

With the rise of commercial air travel, the Pullman Company's 
fortunes inevitably declined. After forty-eight years with the com- 
pany, Howard's father presided over its slide, but by then his son 
had entered college. At the University of California, Berkeley, he 
gravitated toward law. When he arrived in September 1957, frater- 
nities still controlled campus life. The situation soon changed: the 
budding Free Speech Movement rocked the campus. Lincoln 
watched it from the distance of a student determined to go to 
Boalt Hall, where he succeeded in gaining admission in 1962. He 
graduated high in the same class as Rose Bird, who would later 
become a chief justice of the California Supreme Court. 

The draft for the Vietnam War was in effect, and three days 
before he took the bar exam, Lincoln was called to report for a 
physical. He headed downtown to Oakland's Naval Reserve cen- 
ter, where he signed up to be a seaman recruit. Before he was 
called into service, he took a short-term job working for the Ala- 
meda County district attorney, Frank Coakley. (Earl Warren had 
served in that office before he went on to the Supreme Court.) 

Lincoln worked on an embezzlement case in Coakley's depart- 
ment (a county assessor was accused of accepting a bribe), and 
then for an associate district attorney named Ed Meese. He aided 
Meese on several cases and enjoyed working with the ambitious 
and contentious future U.S. attorney general. 



GAME OVER 



When Meese went off to work for Governor Ronald Reagan as 
his clemency secretary in 1966, Lincoln went into the navy with a 
commission as a judge advocate. He headed to Newport, Rhode 
Island, to take the officers' training course and learn the ropes of 
military adjudication. When he was offered duty in either New 
York City or Seattle, he headed west. 

Stationed at Sand Point Naval Air Station on Lake Washington, 
headquarters for the Thirteenth Naval District, Lincoln tried 
court-martial cases. While hanging out at the bachelor officers' 
quarters, he met a striking woman, a naval lieutenant from Kansas, 
where she had worked as a schoolteacher. Bored, she joined the 
navy and received a commission as a line officer and served a tour 
of duty in a photographic intelligence unit. Afterward she was sent 
to Seattle to recruit Wave officer candidates. 

She and Lincoln married six months after they met. 

Grace Lincoln, blond, with large green eyes, and curvaceous, cut 
an impressive figure in a navy uniform. When Lincoln accompa- 
nied her to the base grocery store and they were both in uniform, 
men winked or flashed him the A-okay sign. He felt that he had to 
tell them, "No, it's not like that — we're married." 

Many courts-martial for desertion were tried throughout the 
Vietnam War. Lincoln was assigned, variously, either to defend or 
prosecute the accused. Isolated on a naval base, he had no contact 
with antiwar protests, while Grace, recruiting on college campuses 
with a group of navy pilots, was attacked physically and verbally. 
When her tour of duty was over, she was relieved to retire from the 
military. 

When Lincoln followed her into civilian life in 1970, the couple 
had to decide where to settle down. He considered looking up Ed 
Meese, then in Sacramento with Governor Ronald Reagan, but in 
the end they chose to stay in Seattle. He sent his resume to all the 
top Seattle firms and was hired by Sax and Maclver, where he built 
up a sizable practice, specializing in banking and corporation law. 

Lincoln often worked with a CPA who did the books for Ron 
Judy and Al Stone. The CPA asked Lincoln to look at a contract 
between his clients and Nintendo of America. It confirmed that the 
pair would be the sole U.S. distributors for Nintendo in the coin- 



COM ING TO AMERICA 103 



operated video-game business, in exchange for the payment of a 
set figure for each machine they sold. 

The contract was, Lincoln told them, "completely screwy." 
When he asked who had put the document together, he was told it 
was NOA's president, Minoru Arakawa. He helped Stone and 
Judy fix the contract before they headed off to New York to set up 
Nintendo's distribution network. 

Nintendo's new sales team, Judy and Stone, had good connec- 
tions throughout the industry. The two had worked with numerous 
distributors and operators (who often owned machines in locations 
such as bowling alleys, bars, and restaurants). Occasionally they 
ran into some shady characters — one aggressive operator, wanting 
more liberal payment terms, hinted that he was well connected 
with the mob — but more often the business was straightforward. If 
buyers liked a game, they paid cash for consoles. That was it. There 
were none of the complications of the consumer business: almost 
no advertising, marketing, promotion, or royalties. The industry 
had slowed, however, and the new company's sales were weak. 
Ron Judy told Arakawa that they needed a big hit if he and Stone 
were going to stay with Nintendo. By 1980 they were barely keep- 
ing above water. 

The game that was to turn things around was "Radarscope," an 
uncomplicated shooting game in which the player lined up an en- 
emy fighter in a site and blasted away. Arakawa placed some sam- 
ples in test locations around Seattle and the results were good. 
"Radarscope," he decided, was the game he would use to push his 
operation into the big time. He ordered three thousand units. By 
placing an order that large, Arakawa was committing almost ail of 
NOA's resources. 

It took almost four months for the ship, heavy with the game 
consoles, to travel from Japan to Elizabeth. Arakawa was already 
in a panic when it arrived, because the excitement for "Radar- 
scope" seemed to be evaporating. The games in the test locations 
sat idle, and he had no idea if he would be able to sell them. He 
was learning the hard way about the fickle tastes of video-game 
devotees. A hot game could become passe overnight. THed-and- 
true games such as "Pac-Man," some of the classic shoot-outs, and 



1 D4 GAME OVER 



sports and car-racing games always brought in decent returns, but 
it was impossible to count on new games. By the time "Radar- 
scope" arrived, it seemed old, and Arakawa's in-house gamers 
gave him feedback he didn't want to hear: the game was boring. 

Ron Judy and Al Stone did their best to peddle "Radarscope," 
but operators who previously had indicated they might buy dozens 
took only two or three. Arakawa lowered the price, but he was still 
left with more than two thousand games. Stone and Judy were 
going broke. To keep going, Judy borrowed $50,000 from his aunt, 
her life savings. He thought, I've lost everything. I'll be in debt for 
the rest of my life. Arakawa was deeply worried. "I was thinking it 
was a big mistake to take this job," he says. He was loath to tell 
Yamauchi he was in trouble, but he had no choice. Nintendo of 
America would sink under the weight of all those "Radarscopes." 

Yoko Arakawa's worst fears were being realized. She was smack 
in the middle of the clash she saw coming between her husband 
and father. Arakawa had postponed making the telephone call, but 
finally he called Yamauchi and told him that "Radarscope" wasn't 
selling and NCL's fledgling subsidiary was in trouble. Yamauchi 
snarled, telling Arakawa that he knew he had overstepped himself 
with that huge order. What did Mino want him to do? He never 
would have made that many games if Arakawa hadn't ordered 
them. . . . 

All coin-operated video games looked essentially the same on 
the outside: a cabinet, joysticks, and a screen. What made the 
games unique was inside the cabinet, the PC board, or "mother 
board" — the game's processor, chips, and circuitry. Arakawa could 
have the "Radarscope" cabinets repainted, and he could have the 
"Radarscope" program chips removed. The problem was that he 
had nothing with which to replace those chips. Arakawa weakly 
told Yamauchi that he needed a new game quickly. 

On the phone to Yoko, Yamauchi screamed about her husband's 
ineptitude. He said he felt he had made a serious mistake of the 
kind he had never made before: judging character. Arakawa, irri- 
tated by Yamauchi's I-told-you-so arrogance, bellyached about his 
father-in-law. He felt he should have listened to his wife and stayed 
away from Nintendo. Yoko, meanwhile, felt torn apart. "It was like 
I was on a ship that was going down in the middle of the ocean," 



COM I NG TO AM ER I C A 105 



Yoko says. "Tvo captains were shouting into my ears about what 
must be done, about how disastrous things were." When she called 
to get sympathy from her mother, Michiko was anything but help- 
ful. "Be patient, be cheerful," she said. The advice incensed Yoko. 
"If all I needed was encouragement, I wouldn't be calling," Yoko 
snapped. Reluctantly, when summer arrived a few months later, 
she followed through with her plans to take the children to Kyoto 
for a visit, even though the tension was hardly bearable. 

In America, while they waited for the new game chip, Arakawa 
pushed Nintendo's other games, and also decided to move his base 
of operations. It was a mistake to be in New York. The "Radar- 
scope" disaster illustrated the repercussions of being so far from 
Japan. Shipping to North America's West Coast would cut out 
weeks, even months, of delay. The decision was personal, too. He 
and Yoko had loved living in Vancouver, and neither of them was 
comfortable in New York. The frenetic pace was exhausting, and 
all the driving between the midtown Manhattan office and the 
warehouse and service center in New Jersey was inefficient. 

Arakawa had agents search for offices in California, Washing- 
ton, and Oregon. The major urban center in the United States that 
was nearest to Vancouver was also the closest to Japan: Osaka 
harbor to Seattle took nine days by boat. Seattle was a thriving 
region of new industry, yet it was hardly exploited. Real estate was 
still affordable, and there were other pluses: as a lumber-produc- 
ing area, there were companies that made fine-quality wood prod- 
ucts, and they could make cabinets for arcade games. There was a 
high-quality labor pool because of Boeing and the many high- 
technology companies in the Seattle area. The city's population, of 
about 2 million, was enough to support good restaurants and arts 
and entertainment, yet not so big as to make it overwhelming, like 
New York. 

To search for a place in Seattle, Arakawa contacted Phil Rogers, 
from his days with Marubeni. Rogers put him in touch with a 
broker who found a warehouse to lease in a suburb called Tbkwila, 
not far from Seattle-Tacoma International Airport. 

In the Segali Business Park Nintendo leased a 60,000-square- 
foot warehouse with three small offices built into a corner. 
Arakawa took one for his main office, and Judy and Stone moved 



10B GAME OVER 

into another. The main warehouse became the assembly and distri- 
bution site for the game machines. The service center was there 
too. All the games remaining in New Jersey, including the two 
thousand "Radarscopes," were shipped by rail to the Seattle ware- 
house. 

Minoru called Yoko in Japan and asked her to come back to 
help with the move from New York. She flew to Seattle and they 
found a home to rent — an attractive four-bedroom place on a half- 
acre in Bellevue, across Lake Washington from Seattle. Then, in 
New York, she arranged movers to ship their furniture and clothes 
back west. 

In Japan, Yamauchi made a quick check of his R&D groups and 
found that all the key engineers and programmers were too busy to 
be diverted to help with Arakawa's problems. The United States 
represented an infinitesimal portion of NCL's business, and he 
couldn't justify taking one of his top designers away from more 
important work. He told this to Arakawa, who was growing more 
and more desperate. 

Arakawa pleaded with Yamauchi until his father-in-law finally 
agreed to put someone on the project. The chairman told Gunpei 
Yokoi to oversee the work of the young apprentice he had asked to 
come up with something. "But he knows nothing about video 
games," Yokoi said. 

Yamauchi responded that there was no one else available. 

The young man Yamauchi had chosen wasn't from any of the 
engineering groups; in fact, he wasn't even an engineer, but he had 
enthusiasm and some interesting ideas about the ways video games 
should be designed. 

When Yamauchi so informed Arakawa, his son-in-law fumed. 
He needed a superior game to save the business and Yamauchi had 
put an inexperienced apprentice on the job! Why had Yamauchi 
seduced him into going to America if he was going to sabotage the 
operation? But there was nothing Mino could do, and he weakly 
asked his father-in-law, "What is this apprentice's name?" 

Yamauchi answered, "Sigeru Miyamoto." 



\ 



FDR A FISTFUL \ 

OF QUARTERS ^ 



The Nintendo employees Arakawa took to Seattle with him from 
New York waited for the new game. The team included a service 
manager, a technician, and a secretary. To manage the warehouse 
Mino hired a friend of Ron Judy and Al Stone. 

Don James, a stocky man with large arms and a thick mustache, 
grew up in Seattle and studied industrial design at the University 
of Washington. After graduating, he went to work for Far East 
Video. At Nintendo, his first job was to prepare the warehouse to 
receive the two thousand "Radarscopes" from New Jersey. 
Arakawa gave him permission to hire an assistant. The help- 
wanted ad in the Seattle Times read: "Have Fun and Play Games 
for a Living." 

Tventy-year-old Howard Phillips, who looked remarkably like 
Howdy Doody with a Charles Manson beard, applied. He had 
wavy orange hair, freckles, cobalt-blue eyes, and a goofy grin. Phil- 
lips, though originally from Pittsburgh, had grown up in Seattle, 



GAME OVER 



where his father worked for Boeing. Howard had attended gram- 
mar school with Bill Gates, who went on to found Microsoft. They 
had been in the same carpool. 

Outside school, Phillips employed his ample imagination in in- 
ventions. He made Frisbee shooters out of plywood, with a large 
rubber band and a clothespin for a trigger. He also made an enor- 
mous catapult that launched large rocks at passing cars. 

Phillips had started playing video games when the first home 
systems were released in America. "I was the smallest kid on the 
block, so I was very competitive," he says. "I wanted to show 
my stuff and present myself as an equal." Atari's "Pong" and 
Magnavox's Odyssey were black-and-white tennis games. "The 
games got boring pretty quickly, but it was compelling because you 
could actually control something on your TV." 

Then Phillips created his own game with a motor from an old 
clock, a discarded lamp, and circular Band- Aids stuck onto a globe 
(for targets). Electronic toys and computer games were just a bet- 
ter way of playing, he felt. "You didn't have to spend all the time 
setting up your army men each time," he said. The computer did it 
for you. 

After college, Phillips was working at the Seattle shipyards 
painting boats when he saw the ad in the Times. After meeting 
Don James and Arakawa, he started work immediately at Nin- 
tendo. The ad, he quickly learned, had been misleading. The job 
wasn't as much playing games as lugging, crating, uncrating, assem- 
bling, loading, and delivering them — on occasion, in his own '68 
Buick Wildcat convertible. The machines weighed several hundred 
pounds each. 

The shipment of "Radarscopes" arrived by the truckload from 
the train station after their cross-country journey. Phillips excitedly 
uncrated a game, plugged it in, and stood before the console. "It 
was like when a car dealer gets in a new car," he says. "I would test 
'em out, drive 'em." 

Arakawa watched him. "It was like he was sleepwalking," he 
says. Phillips was disappointed with "Radarscope." "It's hopeless," 
he said. He joined the other Nintendo employees who were wait- 
ing for the new game to arrive from Japan. 

One day a courier delivered a package that had arrived by air 



FOR A FISTFUL OF QUARTERS 1Q9 

from Kyoto. Don James signed for it and delivered the small box to 
Arakawa. He opened it and saw the board that contained the new 
game's program. As the service technician installed it in a console, 
Arakawa called in Judy and Stone. They watched as the power was 
turned on. The opening screen announced the game: "DONKEY 
KONG." 

They looked at one another. Stone swore. He and Judy tried the 
game and concluded that it was a disaster. TWo thousand "Donkey 
Kongs" were worse than two thousand "Radarscopes." Al Stone 
walked out. "It's over," he said. 

Arakawa worriedly complained to Yamauchi, who was thor- 
oughly unsympathetic. He implored Yamauchi at least to change 
the name, but Yamauchi refused. "It is a good game," he said. 

Arakawa had no choice but to attempt to sell it. Judy reluctantly 
agreed to try, and he convinced Stone to cooperate. There was one 
promising sign: when the new flame-haired kid in the warehouse, 
Howard Phillips, test-drove "Donkey Kong," they had to pry him 
off it to get him back to work. 

Before NCL could begin mass-producing the game boards, the 
American team had to provide an English text in place of the 
Japanese in the introductory storyline, which flashed on the screen 
at the start of a game. 

The NOA staff gathered in a corner of the warehouse around a 
couple of card tables. They came up with a simple translation of 
Miyamoto's story and they had to name the characters. Arakawa 
christened the princess Pauline, after James's wife, Polly. They 
were trying to decide what to call the rotund, red-capped carpen- 
ter, when there was a knock on the door. 

Arakawa answered it. Standing there was the owner of the ware- 
house. In front of everyone, he blasted Arakawa because the rent 
was late. Flustered, Arakawa promised that the money was forth- 
coming, and the man left. 

The landlord's name was Mario Segali. "Mario," they decided. 
"Super Mario!" 

The Spot Tavern, near Nintendo's office, was a small, darkly lit 
hangout that served greasy hamburgers, excellent french fries, and 
draft beer in tall glasses. In a back corner was a pinball machine. 



GAME OVER 



Ron Judy convinced the tavern's owner to allow him to set up a 
"Donkey Kong" game. The next morning he wheeled a console in 
on a dolly, set it down next to the pinball machine, and plugged 
it in. 

He didn't expect much when he returned that night to check the 
cash box. But there were 120 quarters inside, $30, a phenomenal 
amount. 

Judy assumed it was an aberration. He checked around 10:00 
p.m. the second day and found $35. The next day there was $36. 
The Spot's owner was happy to have more "Donkey Kongs" deliv- 
ered. His bar was packed with people lined up to play Sigeru 
Miyamoto's first game. 

The NOA team, especially Stone, hated to admit that Yamauchi 
had been right, but Arakawa was greatly relieved. 

The components — the mother board, power supply, and unas- 
sembled cabinets — arrived from Japan. Arakawa, James, Phillips, 
Judy, Stone, Yoko Arakawa, and virtually all the other employees 
assembled consoles throughout long days and nights. Completed 
games were crated and loaded onto trucks, which headed out to 
cities throughout America. Nintendo had a hit on its hands. 

Nintendo of America had its first company Christmas party at a 
restaurant near the warehouse. All of the dozen founding employ- 
ees attended. The centerpiece of the party was a sculpture of Don- 
key Kong made out of fifty pounds of butter covered with shredded 
coconut. Afterward, the sculpture was dried out, shellacked, and 
hung from a rafter in the warehouse, from which it watched over 
the Nintendo crew until it turned green with mold. 

"Donkey Kong's" popularity grew, and Taito, the Japanese com- 
pany behind "Space Invaders," offered to buy all rights to the 
game for an exorbitant sum. Almost everyone associated with 
Arakawa counseled him to take the money. 

Arakawa pondered the offer for days and called Yamauchi to 
discuss it with him. Yamauchi felt that a large advance in hand was 
better than profits they might never see, but he said he would back 
Arakawa in any decision. Arakawa told Taito the rights weren't for 
sale. In Kyoto, Yamauchi told Hiroshi Imanishi, "Arakawa insists, 
so okay. We will see if it is a mistake." 



FOR A FISTFUL OF QUARTERS 111 

All two thousand "Donkey Kongs" sold. The NOA staff was 
astonished. Arakawa called Yamauchi and placed orders for thou- 
sands more. 

Arakawa enlarged his staff, hiring salesmen and service techni- 
cians. Don James hired twenty-five people to assemble and test 
games. When they were ready, serial numbers were affixed and 
they were packaged and shipped. Fifty games went out each day. 
To increase production James began to purchase control panels, 
cabinets, graphics controllers, and monitors from local sources. 
His staff, which grew to include most of Nintendo's 125 employees, 
were building up to 250 game machines a day. 

Sixty thousand more "Donkey Kongs" were sold, and Nintendo 
of America's second year ended with more than $100 million in 
sales. The Arakawas realized they might be in Seattle for some 
time, so they bought the house they had been renting in quiet, 
peaceful Bellevue. Yoko took up tennis, and she dragged Mino 
onto the golf course. 

Judy and Stone were having a good 1981 too. Their accountant 
called Howard Lincoln to tell him they had to form corporations 
for their clients. Lincoln thought it was a joke. "They're half bank- 
rupt, what are you talking about?" he asked. The accountant ex- 
plained that a Nintendo video game was selling like mad. Stone 
and Judy were making a fortune. 

Lincoln formed Ron Judy Inc. and Al Stone Inc. and, with the 
accountant, closed the companies' first fiscal year. Stone says they 
each made in excess of $1 million. 

That same year, Atari and Mattel were battling for the home 
video-game market in America. Coleco, which began in 1932 mak- 
ing swimming pools, went up against them with a system called 
ColecoVision. All three companies wanted the exclusive rights to 
create a version of "Donkey Kong" that would play on their sys- 
tem. Atari and Mattel contacted Arakawa, but Coleco went di- 
rectly to Yamauchi in Japan, who decided that Nintendo should 
work with the company with the most at stake. He told Arakawa a 
deal should be made with Coleco. "It is the hungriest company," 
he said. 

Before he could sell the rights, Arakawa needed a lawyer to 



GAME OVER 



trademark the "Donkey Kong" name and copyright the game, so 
Ron Judy introduced him to Howard Lincoln. Lincoln had never 
done this kind of work and had no idea where to begin. He told 
Arakawa, "No problem." It was, he says, "a typical lawyer re- 
sponse. You never tell a client that you don't know what you're 
doing." 

Once "Donkey Kong" was legally protected, Lincoln helped put 
together the deal with Coleco in 1981. He used a legal form book 
and prepared an agreement. When Arakawa went over it, he asked 
why Nintendo had to warrant that they owned any of the rights to 
the game. Lincoln explained that it was just the way it was done. 
Arakawa asked again. "But why do / have to do it?" 

Lincoln shrugged. "I guess you don't have to." 

Lincoln had Nintendo disclaim any warrant about ownership, 
and he noted in the contract that Coleco assumed the entire risk. 
There was no practical reason for Arakawa to change this provi- 
sion other than his instinctive way of doing business: Never give 
anything away that you don't have to. "I knew Nintendo owned the 
game, but I figured, What the hell, might as well be bold," Lincoln 
says. Taking his cue from his client, Lincoln skewed the rest of the 
contract to favor Nintendo, "mostly because we didn't know how 
things were normally done," he says. 

The agreement between Nintendo and Coleco was to be signed 
before the end of the year, and Lincoln spent most of the night of 
Christmas Eve 1981 completing it. On Christmas Day he sent it to 
Arakawa for his signature. Arakawa hurried it to Japan for 
Yamauchi to sign with a representative of Coleco, who had been 
sent to Kyoto to nail down the deal. 

When they met at NCL, the Coleco executive told Yamauchi 
that he would take the contract back to America to have the com- 
pany's attorney check it over and return it signed. Yamauchi re- 
fused, saying, "You must sign it now, or we are going to go with 
someone else." The man froze. He had no choice. Nervously, he 
signed the agreement. 

Meanwhile, Nintendo had outgrown the warehouse at Segali 
Business Park, and Arakawa wanted to move to a larger and better 
location. Another manager would have been more cautious. One 
successful video game in that volatile business did not necessarily 



FOR A FISTFUL OF QUARTERS 1 13 

mean there would be more. Arakawa, however, viewed "Donkey 
Kong" as the break he needed, just the beginning. With Phil Rog- 
ers he went looking at real estate east of Seattle, amid the rolling 
hills of Redmond and Bellevue where high-technology companies 
had sprung up the way redwoods and fir trees once did. Set be- 
tween lakes Washington and Sammamish, they were small logging 
towns before the 1920s, when the countryside had already been 
scalped of timber. The communities dependent on logging became 
pleasant bedroom communities surrounded by the beautiful lakes, 
protected woods, and meadows. Redmond's chamber of commerce 
was proud of the community's designation as the Bicycle Capital of 
the Northwest before it was discovered by the high-technology 
industry. (Since then the chamber boasts that Redmond is the City 
of Opportunity.) 

Microsoft, which sprawled out in dozens of beige buildings at 
the Ninth Avenue NW exit off mall-lined Route 508, called its 
Redmond plant a "campus," which fooled no one. Microsoft was 
hardly distinguishable from the other electronics and aviation 
companies in the area— from Data I/O and Rocket Research to 
Sundstrand Data Control and, along the road to the Seattle- 
Tacoma airport, Boeing. 

Arakawa invested "Donkey Kong" profits in twenty-seven (and 
later, an additional thirty-three) acres of cleared and plowed Red- 
mond land. He paid cash and the deal was closed in July 1982. By 
then he talked Phil Rogers into joining Nintendo full time. Rogers 
said he wanted to be a vice-president. When Arakawa balked, 
Rogers said, "Don't worry about the title; everybody is a vice- 
president in the United States." 

Arakawa said he would talk to Howard Lincoln, who advised 
against it, and Rogers was persuaded to accept the title of director 
of real estate. His first job was to oversee the construction of the 
first of several Nintendo corporate buildings— three-layer rectan- 
gles, like high-tech sheet cakes. Eventually he also bought 125 
acres in nearby North Bend for a larger new warehouse, as well as 
several small parcels in Seattle. 

The first building was ready in November 1982. By the time the 
additional warehouse and production buildings were completed 
and the warehouse at Mario Segali's industrial park was vacated, 



GAME OVER 



Rogers was Nintendo's director of product development and man- 
ufacturing. Six months later he became vice-president of opera- 
tions. 

Rogers worked with Don James to design a production system to 
build video games more efficiently. After "Donkey Kong" there 
were "Donkey Kong Jr.," "Popeye," "Punch-Out" (later intro- 
duced as "Mike Tyson's Punch-Out!" as a home video game when 
an endorsement deal with the heavyweight champ was negotiated), 
and then a new kind of arcade game designed by Nintendo Japan. 
Called the VS System ("VS" for versus), it was a console video- 
game system that had two monitors, side by side, with two play 
options: you versus the machine or you versus another player. The 
first VS game was a baseball game. Four kids held on to joysticks 
and controlled pitching, batting, and fielding. 

Arakawa came up with another system that Genyo Takeda's 
R&D 3 developed for him in Japan. This new arcade machine, 
dubbed Play Choice, had ten games to choose from. The selection 
of games could be changed by removing a panel and replacing a 
circuit board. It was similar to a jukebox; the machine stayed the 
same, only the records changed. McDonald's restaurants founder 
Ray Kroc had once forbidden video games from the golden arches, 
but when he died Play Choice systems were set up in various Big 
Mac franchises in Florida. 

Income from "Donkey Kong" poured in. There were tertiary 
licensing agreements of the "Donkey Kong" character (a cartoon 
show, pajamas, and the like), as well as spin-off versions of the 
game. 

As the arcade games continued to sell well in early 1982, 
Arakawa asked Phil Rogers to accompany a friend of his, Peter 
Main — his former neighbor from Vancouver, who knew the restau- 
rant business — on a visit to the corporate headquarters of Chuck 
E. Cheese Pizza Time Theater. Chuck E. Cheese was a California- 
based chain of restaurants started by Nolan Bushnell, the man who 
had invented the first commercial video game and the founder of 
Atari. Pizza Time Theater was a combination entertainment center 
and restaurant. Families waiting for their pizzas would be enter- 
tained by stage shows performed by robotic stuffed animals and by 
the latest video games, which conveniently lined the walls. 



FOR A Fl STFU L OF QUARTERS 115 



NCL was interested in acquiring the rights to open Chuck E. 
Cheeses in Japan. It was a logical move for Yamauchi, who saw 
that Chuck E. Cheeses would, like his Laser Clay ranges, be an 
entertainment center where he could place Nintendo's technology. 
He would make money selling pizza, too. Arakawa was interested 
in Chuck E. Cheese franchises as well. Besides the other benefits, 
Nintendo-owned arcades could serve as testing centers for new 
games. 

Rogers and Main arrived at the company's headquarters in Sun- 
nyvale and noticed that the parking lot was full of Porsches and 
Mercedeses. Above the receptionist's desk was the smiling face of 
Chuck E. Cheese, the company's mascot— a rat. Below Chuck was 
an electronic sign that announced, in gleaming red neon, the price 
at which the company's stock was currently being traded. 

Rogers and Main spent the day meeting with various executives 
(founder Nolan Bushnell was nowhere to be seen). One, in charge 
of the restaurant operation, said she was working on improving the 
quality of the pizza crust. All the others they met seemed obsessed 
with robotics, global conquest, and the value of the company's 
ascending stock. 

When the two men returned to Seattle, they warned Arakawa 
that the Chuck E. Cheese people didn't know what they were 
doing. Main said that under its current management Chuck E. 
Cheese didn't have much chance of surviving. 

Over a series of meetings, Arakawa investigated franchising 
Chuck E. Cheeses that he would manage independent of the Sun- 
nyvale organization. Yamauchi, meanwhile, concluded that the 
large Pizza Time Theaters were impractical for Japan, where 
square footage was extremely expensive. 

Arakawa went ahead and secured the franchise rights to open a 
Chuck E. Cheese in British Columbia (the Seattle rights had been 
sold). Rogers found a location near Vancouver on a busy thor- 
oughfare, and in 1983 Nintendo opened the doors to 20,000 square 
feet of furry robots, video games, and pizza-making equipment. 
Out front was a huge Chuck E. Cheese rat. 

Nintendo's Chuck E. Cheese did exceedingly well, bringing in 
$3 million in gross sales and $700,000 in profits its first year. Phil 
Rogers was looking into opening a second Chuck E. Cheese just 



GAME OVER 



when it was announced that Nolan Bushnell had resigned from the 
company, which was on its way to bankruptcy. 

No other Chuck E. Cheeses were opened by Nintendo, but 
Arakawa liked the restaurant business. Advised by Peter Main, he 
opened two other Vancouver restaurants, Salmon House on the 
Hill, and Horizons, both of which featured fresh fish, thick steaks, 
and great views. Yamauchi felt the restaurants were a distraction. 
He warned Arakawa: "You cannot look forward if you are looking 
left and right." 

By 1982, Howard Lincoln found himself occupied almost exclu- 
sively with Nintendo-related matters. He was asked to draw up a 
new contract between Nintendo and Al Stone and Ron Judy and ' 
terminate their past agreement. Judy was becoming Nintendo's 
vice-president of marketing and Stone its vice-president of 
sales. 

Next Lincoln was asked to work with Nintendo to do something 
about the extraordinary number of counterfeit "Donkey Kong" 
games on the market — as many as half the games sold were coun- 
terfeit. 

Lincoln and his staff went after the counterfeiters and their 
customers, employing detectives and cooperating with police and 
customs officers throughout the country. One distributor in Texas 
who dealt in phony Nintendo games disappeared, but many others 
were brought to court. Organized-crime connections were never 
concretely proved in any of the cases, but one prosecutor insisted 
that the distribution of the illegal games never could have become 
such a large business without the mob. 

When Lincoln's team of lawyers tracked down a source of boot- 
leg games, they would get U.S. marshals to raid the offenders, 
court orders in hand. Many thousands of mother boards and cabi- 
nets were confiscated. 

Nintendo litigated thirty-five copyright infringement suits 
against individuals and companies selling counterfeit "Donkey 
Kong" games, but in spite of all the efforts, the company lost at 
least $100 million in potential sales because of counterfeiters. 

While planning legal strategies, Lincoln and Arakawa spent a 
great deal of time together, consulting at each other's offices or, on 



FOR A FISTFUL OF QUARTERS 1 1 "7 



occasion, on airplanes, flying between Seattle and Japan and 
throughout America. In Seattle, Mino and Yoko frequently dined 
with Howard and Grace Lincoln. These evenings, though ostensi- 
bly social, inevitably turned to Nintendo business. 

One late night in April 1982, Arakawa called Lincoln at home. 
There was an unusual urgency in his voice. Arakawa explained that 
his father-in-law had just called from Kyoto, where it was early 
morning. A telex had arrived at NCL from Sidney Sheinberg of 
MCA Universal, the huge entertainment conglomerate. The telex 
was short and direct. It said that Yamauchi had forty-eight hours to 
turn over all of Nintendo's profits from "Donkey Kong" and to 
destroy any unsold games. The game, MCA claimed, was an in- 
fringement on a Universal Studios copyright— for the movie King 
Kong. 

The telex was ominous. Just as Nintendo of America was finally 
succeeding, here was a threat from one of the most litigious, hos- 
tile men in the entertainment business. Sheinberg, MCA's indomi- 
table president, second in that organization only to chairman and 
CEO Lew Wasserman, was an attorney who was known to work, as 
one colleague put it, "like a python, strangling his prey before 
devouring it." 

After a sleepless night, Arakawa and Lincoln headed to their 
respective offices and consulted on the telephone. There was every 
reason to believe that MCA, with its enormous clout and bank 
account, could crush a relatively small, foreign-owned company 
like NOA. Why, Arakawa wondered, hadn't anyone considered 
that "Donkey Kong" might infringe on the King Kong copyright? 
Lincoln tried to reassure him. He explained that the threat from 
MCA wasn't unusual in business, and it certainly didn't mean that 
Nintendo was in the wrong. If nothing else, it was undeniable proof 
that Nintendo had made it into the big time. 

After a week or so of frantic research, Arakawa and Lincoln 
prepared to leave for Los Angeles for a meeting with the MCA 
brass. The pair arrived in L.A. and headed for Universal's main 
office building, known as the "black tower" (appropriately forbid- 
ding, the two felt), in Universal City. Bob Hadl, an MCA attorney, 
escorted the men into an elaborate office crowded with antiques 
and expensive artwork. There was a sweeping view of the smog. 



1 1B GAME OVER 



Also present were two attorneys from Coleco, MCA's in-house 
attorney, and an outside counsel. Coleco, which had invested a 
fortune in its impending launch of the ColecoVision system, which 
would include a home version of "Donkey Kong," had apparently 
received the same threatening letter. 

Hadl and another MCA attorney explained their boss's position: 
Sheinberg planned to sue and immediately seek a preliminary in- 
junction that would stop both Nintendo and Coleco from selling 
any games while the litigation continued. There was only one alter- 
native: Nintendo and Coleco had to settle. 

It was expected, but chilling nonetheless. Coleco had virtually 
bet the store on "Donkey Kong." For Nintendo, "Donkey Kong" 
was the store. 

MCA's lawyer waited for a response. Lincoln spoke first. "If you 
own King Kong and it is infringed by 'Donkey Kong,' then we'll 
settle," he said. "But I'm not going to buy the goddamn Brooklyn 
Bridge. First you'll have to prove to me that you own King Kong." 

There was silence. The MCA team looked at him and Arakawa 
as if they were Martians, Lincoln recalls— "Like, come on, what 
are you smoking?" 

There was lawyerly huffing and puffing and large bodies fidget- 
ing in uncomfortable chairs until the MCA outside counsel spoke. 
"Of course we own it," the lawyer said. 

He was back on the offensive, listing everything that MCA was 
going to go after: royalties, inventory, damages. ... He sug- 
gested that the Nintendo and Coleco representatives discuss their 
course of action in privacy. Before the others adjourned to a pri- 
vate conference room, MCA's attorney told Lincoln that the only 
way to avoid a lawsuit was a settlement. "You don't have a chance 
in court," he said. 

When the lawyers and Arakawa were alone, the Coleco team 
said they agreed; there was no alternative but to acquiesce. "What 
else can we do?" they said. "The gorillas look the same, the name 
is almost the same . . ."They attempted to convince Arakawa 
and Lincoln to settle, never letting on that they already had. 
Coleco, terrified of MCA and looking to appease Sid Sheinberg, 
who had dangled the possibility of investing in their company, had 
promised to try to convince Nintendo to settle too. "Sid Sheinberg 



FOR A FISTFUL OF QUARTERS 113 

had put the screws to Coleco's CEO, Arnold Greenberg," said 
Howard Lincoln. "He told him to get Nintendo to settle up." 

MCA also went after other companies to which Nintendo had 
licensed "Donkey Kong." By then Atari was selling a "Donkey 
Kong" computer game, and MCA was also pressuring Atari's par- 
ent company, Warner Communications. Sheinberg personally 
threatened Warner CEO Steve Ross. "I told him ... I didn't 
want to be in the position of suing him," Sheinberg says. Ralston 
Purina, which had licensed the "Donkey Kong" character for a 
breakfast cereal, responded to Sheinberg's threat by offering a 
$5,000 settlement. This incensed Sheinberg. "It's the most stupid 
thing I ever heard of," he said. "Throw them out of the building." 
Thereafter Ralston Purina refused to settle, as did Milton Bradley, 
which had a "Donkey Kong" board game. 

In the meeting in the black tower, Coleco's lawyers never so 
much as intimated that they had cut a deal with MCA. All they said 
was, "There is no alternative to settling." Lincoln listened intently 
and never let on that he felt they were probably right, that Nin- 
tendo would have to settle (he calculated that it would take a 
minimum of $5-$7 million). Still, he refused to agree to anything. 
"We need more time," is all he told the Coleco team. 

They pressed him, seemingly in panic. Lincoln told them, "You 
can do whatever you want, since there was no warrant about the 
rights you bought from us." 

The Coleco lawyers glared at him. "We know that," one of them 
said. Arakawa glanced over at Lincoln. They shared a fleeting 
moment of schoolboy glee. The no-warrant clause in the contract 
Yamauchi had intimidated Coleco into signing was paying off. 
Even if they did have to settle, Nintendo was not responsible for 
Coleco's losses. 

As the men left the room, Lincoln tugged Arakawa's arm. They 
slowed up and Lincoln whispered, "Something's going on." The 
reaction to his crack about the Brooklyn Bridge made him wonder 
if MCA actually did own King Kong. "Don't agree to anything," he 
said. 

Back in Hadl's office, the Coleco attorneys excused themselves, 
saying they would meet alone with Hadl at another time. It made 
Lincoln suspicious. "Something was wrong. Something was going 



GAME OVER 



on between Universal and Coleco," he says. He decided he had 
better buy some time. "We have to sort things out," Lincoln told 
Hadl when he and Arakawa prepared to leave. Hadl told him he 
had better not take too long. 

Lincoln and Hadl spoke by telephone throughout the next 
month. In June, the MCA attorney said, "You've had all the time 
you need. It's time to meet and sew things up." Lincoln said he was 
ready and he and Arakawa planned to return to Universal City. 

The morning the pair left for the Seattle airport, Arakawa was 
running a fever, fighting off the flu. He asked Lincoln if he was 
really needed. Lincoln insisted. Under no conditions would he do 
this alone. 

They flew back to Southern California and taxied to the black 
tower. Soon after they met with Hadl, they were told that if they 
were ready to "resolve things" they should head down "to meet 
with Mr. Sheinberg." Arakawa looked at Lincoln, who said nothing. 

They accompanied the MCA lawyer through the corridors to the 
elevator. 

Sheinberg had risen in the ranks of MCA to become one of the 
most powerful movie moguls in Hollywood. MCA was comprised 
of a record company, a television production company, a book 
publishing house (G. P. Putnam's Sons), a retailing division, theme 
parks, and massive real estate holdings. Sheinberg was savvy about 
future technologies, and he did his best to place MCA in a strate- 
gic spot by investing in them. 

Before Nintendo had been threatened, a meeting was arranged 
between him, MCA chairman Wasserman, and Coleco's president. 
Arnold Greenberg had big plans for Coleco, but he needed vol- 
umes of cash. The three men were talking about the possible ac- 
quisition of— or at least an investment in— Coleco by MCA when 
Sheinberg casually mentioned that Coleco's association with Nin- 
tendo was a stumbling block to any arrangement they might make. 
"We believe some rights of ours are being violated," he said. 

Greenberg smiled wryly and asked, "What took you so long?" 

Later Sheinberg said he remembered the moment. The line, he 
said, was "that . . . famous movie line where the hero rides off 
into the sunset and then somebody always comes running after 



FOR A FISTFUL OF QUARTERS 1 21 

him, and the hero turns around and looks at the guy or the woman, 
always John Wayne or Gary Cooper or somebody, and says, 'What 
took you so long?' and you do a fadeout." The message was clear: 
Greenberg had come prepared to negotiate. 

A deal was made. As leverage to convince Greenberg to settle 
with MCA, Sheinberg dangled the prospect of a partnership or 
some agreement that would bring a cash infusion into Coleco. 
Coleco could continue to sell "Donkey Kong" in exchange for a 
modest royalty. "We entered a covenant not to sue," Sheinberg 
said. "And we received from Coleco an agreement that they would 
pay us 3 percent of the net sales price [of all the "Donkey Kong" 
cartridges Coleco sold]." It turned out to be an impressive number 
of cartridges, 6 million, which translated into $4.6 million. (In sub- 
sequent negotiations, Sheinberg's interest in Coleco evaporated.) 

The Coleco negotiation wasn't Sheinberg's first attempt to bring 
MCA into the video-game business. "There was a point in time 
when the video-game business looked like it was going to be the 
biggest business around," he said. He wanted MCA to be, as he 
put it, "a principal" in video games, as it was in records, movies, 
and videocassettes. He formed MCA Video Games and later 
bought a company called LJN, makers of toys and Nintendo 
games. 

On that June day when Arakawa and Lincoln followed Hadl out 
of the black tower, they walked through the Universal lot, past 
actors in costumes and palm trees traveling by on a trailer. When 
they reached a long warehouse-like building, Hadl announced, 
"The executive dining room," as he grandly opened a side door. 

Inside was one massive table, tl^at could have seated dozens, set 
for four. They sat down and waited. Arakawa's fever worsened. 

Sidney Sheinberg, tall and lanky, wearing large horn-rimmed 
glasses, arrived and settled into his chair. Arakawa was feeling so 
ill that he felt he might pass out when, after a round of introduc- 
tions, an elaborate lunch was served. There was interminable small 
talk, and by the time Sheinberg announced how pleased he was 
that Nintendo had agreed to settle the case, Arakawa was ready to 
keel over. 

He looked at Howard Lincoln, who had been charming 



GAME OVER 



Sheinberg and Hadl with stories of video games and fishing, and 
watched the attorney transform. "It's real simple," he said, eyeball- 
ing the MCA chief. "We have done a lot of research on this thing, 
looked at it from top to bottom, and we feel that there is no 
infringement." Firmly, coldly, he said, "We have no intention of 
settling." 

Arakawa had never seen Lincoln this icy, and he was shaken. He 
had no idea how Sheinberg would react. 

His face reddening, Sheinberg pushed back his chair, placed his 
hands on the edge of the table, and boomed, "What is going on 
here?" He took a deep breath. "I understood that you were com- 
ing down here to talk about a settlement! For Christ's sake, you're 
wasting my time. What the hell is going on?" 

He looked toward Hadl, who went white. Hadl threw a pleading 
glance at Lincoln, who continued. "It's simple," he said. "I wanted 
to tell you we aren't going to settle and I wanted to do it by looking 
you right in the eyes. That, Mr. Sheinberg, is what I'm doing." 

Rising from his chair, Sheinberg said, "I've heard enough. You'll 
hear from our legal department." He glared at Lincoln. "You are 
making a major mistake," he fumed. "I view litigation as a profit 
center." 

The three men rose, too, and walked behind him to the elevator. 
Hadl followed Sheinberg in as Arakawa and Lincoln hung back, 
watching. Before the doors closed, Lincoln called out— "Mr. 
Sheinberg?" 

Sheinberg looked at him and grunted. 

"Have a nice day," Lincoln said. 

Sheinberg kept his promise and filed the lawsuit in New York 
State, so Lincoln flew East to meet with John Kirby of Mudge, 
Rose, Guthrie, Alexander and Ferdon, the well-known New York 
law firm. Kirby was one of the top litigators in the country, and had 
handled antitrust cases for PepsiCo and Warner-Lambert and fran- 
chise cases for General Foods. "When I initially met him, I wasn't 
all that impressed," Lincoln says. "He was kind of disheveled look- 
ing and out of sorts. But it didn't take long to figure out that this 
guy was one hell of a lawyer." Kirby had a reputation for vigor- 
ously defending his clients. Importantly for Nintendo, nothing in- 
timidated him. 



FOR A FISTFUL OF QUARTERS 123 

Lincoln and Kirby headed to Kyoto to meet Yamauchi and dis- 
cuss the case with him and other NCL executives. It was Lincoln's 
first meeting with Yamauchi, and he had heard enough about the 
Nintendo chairman to be on guard. Inside the Mother Brain they 
inspected each other. "I have no liking for lawyers," Yamauchi 
said. 

Lincoln restrained a smile. "We have more lawyers in Seattle, 
Washington, than you have in all of Japan," he said. "Few lawyers 
is the greatest business advantage Japan has over the United 
States." 

"I could tell that he was a very strong person who was used to 
getting his way," Lincoln says. "There was no small talk. He didn't 
waste time." 

Yamauchi wanted to know one thing from the attorneys: What 
must be done to guarantee that Nintendo would win the lawsuit? 
"We must win," he said. 

After interviewing Nintendo employees, including Gunpei 
Yokoi and Sigeru Miyamoto, Lincoln and Kirby returned to the 
United States and worked with their respective staffs over the next 
ten months to prepare their case. Arakawa was elated when he 
heard that Lincoln's instincts had proved correct: there was serious 
doubt that Universal owned the rights to King Kong. The company 
had never protected the King Kong trademark, and past litigation 
seemed to confirm that King Kong was in the public domain. The 
best news was that Universal had once prevailed in litigation by 
asserting just that: that the name King Kong was in the public 
domain and could not be trademarked. 

There was more. Nintendo discovered that Coleco had settled 
with MCA, and that Sheinberg was negotiating an investment in 
Coleco with Arnold Greenberg. This brought to light other moti- 
vations for the lawsuit. Sheinberg wanted a place in the video- 
game business, and was suing the companies that would be his 
major competitors. 

As the materials for the trial were being assembled, Arakawa 
asked Yoko one night if she thought Howard Lincoln would leave 
his law firm and come to work exclusively for Nintendo. Arakawa 
had come to rely on Lincoln's legal skills, but there was more to it 
than that. He had never found anyone, outside of his family, with 



124 GAME OVER 

whom he felt as close. He respected Lincoln, professionally and 
also as a friend, but he wondered if he was being presumptuous, 
too pushy, or too eager. Yoko replied that there was only one way 
to find out. 

On one of their many flights together, Arakawa finally ap- 
proached Lincoln. He said he knew that Lincoln was bored with 
his legal practice and he asked him to come work with him at 
Nintendo. 

Betraying no emotion, Lincoln told Arakawa he would think 
about it. After a brief deliberative pause, he said that if he decided 
to gamble on Nintendo, he wouldn't come aboard as corporate 
counsel. He wanted to help run the company, to be involved in 
every aspect of the business. 

Arakawa immediately responded that this was exactly what he 
had in mind. In a subsequent meeting that lasted no more than 
fifteen minutes, Lincoln and Arakawa came to an agreement. Lin- 
coln would come aboard as Nintendo's senior vice-president, and 
would work alongside Arakawa in the number-two position. At the 
conclusion of the meeting, the Nintendo president shook Lincoln's 
hand. "I got you," he said. 

Lincoln scheduled a meeting with his partners at the law firm on 
December 7, at which he gave them thirty days' notice. 

In fighting the "Donkey Kong" case, MCA and Nintendo pre- 
sented evidence and testimony in the New York courtroom of U.S. 
District Court Judge Robert W. Sweet. Howard Phillips was called 
to court one day to play "Donkey Kong" because John Kirby 
wanted to demonstrate that the game had nothing to do with King 
Kong. Sigeru Miyamoto was deposed in Kyoto. He recounted how 
he came up with "Donkey Kong," explaining that he had called the 
character King Kong before naming him Donkey Kong because 
"King Kong" in Japanese was a generic term for any menacing 
ape. 

Kirby also presented testimony and judgments from the past 
trials that brought into question MCA Universal's ownership of 
King Kong. He sought to prove that after its previous trials, MCA 
knew it didn't have those rights, and that they had filed suit against 
Nintendo in full knowledge of this fact. 



* FOR A FISTFUL OF QUARTERS 125 

A strong case developed so quickly that Nintendo's lawyers 
moved for summary dismissal of the suit, and Sweet granted it. In 
his written opinion, the judge described what appeared to be his 
favorite day of the trial. " 'Donkey Kong,' " the judge wrote, "was 
demonstrated by a game master and pertinent parts of the 1933 
movie and the 1976 remake were reviewed, an altogether satisfying 
court day enhanced by the argument of highly skilled and forceful 
counsel and marred only by the submission of affidavits, deposi- 
tions, and briefs." 

There was nothing lighthearted about the judgment itself. Sweet 
concluded that Nintendo had not infringed on MCA Universal's 
rights because the company didn't own them. He also ruled that 
there was no infringement even if MCA had owned King Kong, 
since the game was completely different from the movie. The judge 
criticized MCA for bringing the lawsuit in spite of full recognition 
that it didn't own the rights, and this paved the way for Nintendo 
to be awarded damages. 

MCA appealed the case all the way to the U.S. Supreme Court, 
and lost in each round. At one stage of the appeals, Howard Lin- 
coln was called to testify. He pulled out the notes he had taken 
after his first meeting at MCA, when he said that Nintendo would 
not agree to buy the Brooklyn Bridge. He detailed the lunch meet- 
ing, during which Sid Sheinberg said that he viewed litigation "as a 
profit center." 

When Sheinberg testified, he was asked to recall his lunch meet- 
ing with Arakawa and Lincoln. "I believe that one of them was a 
relative or somehow related to the Japanese person who I under- 
stood owned or controlled Nintendo," he said, dismissing 
Arakawa. Of Lincoln, Sheinberg said, "I believe he was a kind of a 
general counsel to Nintendo, but not one of great authority, as it 
appeared to me." 

In his cross-examination of Sheinberg, John Kirby earned all the 
money Nintendo was paying him by reminding the judge why MCA 
sued in the first place. "I gather it's a pretty big company you are 
running out there, Mr. Sheinberg?" he asked. 

Sheinberg nodded. "It's a big company with lots of legal involve- 
ments." 



1 26 GAME OVER 



Kirby asked about MCA's revenues for the past year. When 
Sheinberg said they were in excess of $1 billion, Kirby asked how 
much of this was profit. 

"I think our profits were around $135 million. . . ." Sheinberg 
responded. Total sales, Sheinberg said, were $1.6 billion. 

Kirby continued. "What portion of your total operating income 
was contributed by your litigation profit centerT he asked. 

Sheinberg eyed him. "By our litigation profit center?" 

The point was not lost on the judge. Kirby continued, asking 
Sheinberg to confirm a report in Business Week that put his salary 
at $4,638,000. 

Sheinberg's attorney jumped in. "This is amusing and all," he 
said, "but what real relevance is there to it? We'll stipulate that 
he's a well-paid executive. Where do you go with this line?" 

Kirby said that the line of questioning was concluded. He added, 
"And I don't even think I need to make the argument about rele- 
vance in terms of an exemplary damages claim." 

Sheinberg's arrogance had, in the opinion of several spectators, 
infuriated the judge. But what sank MCA was the evidence that 
Sheinberg had already instigated and won a lawsuit proving that 
King Kong was in the public domain. MCA's suits (and the threats 
of other suits) were seen as MCA's "litigation profit center" at 
work. 

Nintendo was awarded $1.8 million. Months later, the arrival of 
a big, fat check from Universal was followed by a celebration at 
Arakawa's home. Yoko brought out caviar and champagne. 
Arakawa and Lincoln toasted each other and John Kirby, whom 
they would reward lavishly. Soon after in New York, they took the 
attorney, his wife, and some associates to dinner in the private 
dining room of an elegant Manhattan restaurant. After dinner they 
presented Kirby with a framed photograph of a thirty-thousand- 
dollar, twenty-seven-foot sailboat. The boat, Nintendo's way of 
saying thank you, had been christened Donkey Kong and included, 
they explained, "exclusive worldwide rights to use the name for 
sailboats." 

Coleco, which had sold Nintendo out in its settlement with 
MCA, filed against MCA Universal to get back the royalties they 



FOR A FISTFUL OF QUARTERS 127 

had paid. Universal settled. Atari and the other companies MCA 
had shaken down were also paid back. 

The experience did more than bolster Nintendo's bank accounts. 
"We learned," says Lincoln, "that we could handle ourselves in the 
big leagues. And we learned that the kind of arrogance we saw at 
MCA is lethal." 

NOA, strong from "Donkey Kong's" enormous success, headed 
cautiously into the consumer market. NCL sent over Game & 
Watches, which had sold like 40 million hotcakes in Japan and 
Asia, where demand was never a problem. In fact, the demand was 
so great that all manner of counterfeiters started making them; the 
cheap imitations being made all over Asia were the problem. Per- 
haps as many illegal Game & Watches were sold as ones made by 
Nintendo. 

To launch the business in America, Bruce Lowry, a vice-presi- 
dent at Pioneer, was hired to run Nintendo's new consumer divi- 
sion. Just the idea that they had a consumer division delighted 
Arakawa and Lincoln. 

Entering the consumer and toy businesses meant learning a new 
industry. At the Redmond headquarters, in a conference room 
they had named "Donkey Kong," Lowry tried to educate his new 
colleagues about the rules of the toy business. There was much to 
do to prepare them for their first trade shows in January and 
February 1983. Don James worked on display booths while Lowry 
outlined the steps Nintendo ought to take. 

There was no dissent when Lowry said that Nintendo needed an 
office in New York (they would rent space in the Toy Center build- 
ing, at 200 Fifth Avenue). But when he explained the way billing 
was done in the toy business, the Nintendo executives balked. 

Lowry said that toy companies expected all invoices to be dated 
December 10. But Nintendo sold coin-operated video games on 
net-thirty terms — all bills were due in thirty days. Simple. 

Lowry explained that in the toy business, orders came in in, say, 
January or February for a product that was to be shipped in the 
summer. The toy stores had the winter season to sell it. Then, 
finally, they began to pay their bills on December 10, once much of 
the Christmas business was over. 



12B GAME OVER 



Howard Lincoln jumped in. "Wait a second! Why the hell would 
anyone agree to that? We build the product and take all the risk 
and we have to finance this whole thing and then sometime in 
December we're going to get paid — maybe?" 

Lowry said this was correct. That was how the toy business 
worked. 

In 1983, Arakawa attended his first Consumer Electronics Show 
to drum up business for Game & Watch. At this crucial trade show 
for businesses from Walkmen to VCRs, a company's placement in 
the CES's convention-center display rooms says volumes about its 
stature in the industry. Nintendo was hidden in a tiny booth on a 
high floor in an out-of-the-way building. Buyers couldn't have 
found the company's modest display of Game & Watches even if 
they had been looking for it. 

Things weren't much more promising at the Toy Fair the follow- 
ing month. The shows were barometers of what was to come; NOA 
lost millions on Game & Watch in the United States. The lessons, 
however, were valuable. The next time NOA entered the consumer 
business, the Nintendo team was prepared. They knew never to 
call their product a toy, whether or not it was. That way they didn't 
have to offer December 10 invoicing. They also didn't have to give 
mark-down money, which was another unsettling new concept for 
Howard Lincoln. 

When it finally came time for a major chain to pay its Game & 
Watch bills to Nintendo — after December 10, 1983 — Lincoln re- 
ceived a call from the chain's controller. The gentleman asked for 
mark-down money, and Lincoln didn't know what he was talking 
about. "You know, mark-down money," the man said. "We still 
have a lot of those Game & Watches, you know. We have to mark 
them down to sell them." 

"We sold them to you and sent the invoice," Lincoln said. "We 
shipped them to you, so you owe us the money. If the product 
doesn't sell, that's not my fault. You took the risk. You owe us the 
money." 

The man said, "You may have learned a lot of things in law 
school, but we're in the toy business. If the product doesn't sell, 
you have to give us mark-down money; you have to reduce the 
price so that we maintain our margin." 



FOR A FISTFUL OF QUARTERS 129 

"You gotta be nuts," Lincoln said, but the man explained that 
the practice was standard. "We're long-term partners," he told the 
Nintendo manager. "If you don't want to give us mark-down 
money, fine, but don't have your salesmen call anymore." Nin- 
tendo gave the mark-down money. 

Another lesson Nintendo learned from the Game & Watch di- 
saster was how not to make television commercials. An agency 
Nintendo had hired came up with a creative television campaign it 
dubbed "the bored campaign." In one thirty-second spot a boy was 
sick in bed. The second after his mother tucked him in, he pulled a 
Game & Watch out from under his pillow. In another "bored" 
commercial, a young boy was bored to tears at a wedding. He said, 
"My parents brought me to this stupid wedding and I'm 
bored . . ." until he pulled out his Game & Watch. 

Rather than allow the agency to produce the commercial with 
professional actors, Ron Judy and the marketing group decided to 
cast it. They thought they could make the commercials more be- 
lievable by using nonactors. It was an expensive, though hysteri- 
cally funny, mistake. They used Nintendo employees. The 
company's new credit manager, for instance, a kindly older woman 
who froze in front of the camera, played the mom. The resulting 
ads were so bad that television stations refused to air them. 

Nintendo's Game & Watch business was dissolved in the sum- 
mer of 1985. By then, although NCL was making an enormous 
amount of money on the Famicom in Japan, almost all of the 
revenues of its American subsidiary were still from coin-operated 
games. Hiroshi Yamauchi wanted to change this and he told 
Arakawa it was time to launch the Famicom in America. To deter- 
mine if it was feasible, Arakawa undertook an investigation of the 
American home video-game business. 

It was like surveying a car wreck. In the early 1980s, companies 
such as Atari, Mattel, and Coleco had been sharing a multibillion- 
dollar business. By the end of 1983, all that was left was the 
wreckage of a devastating crash. The industry had shrunk to an 
insignificant size, amounting to only a few hundred million dollars. 
Companies that had been raking in the cash were bankrupt. It 
seemed clear that the American market just wasn't interested in 
home-video games. 



130 GAME OVER 



Arakawa talked to people who had worked in the home video- 
game industry. He met with manufacturers, wholesalers, and dis- 
tributors, with buyers for department stores, discount stores, toy 
stores, electronics stores, and software companies, and with par- 
ents. From everyone he heard the same message: the last thing 
anybody wanted to hear about was a new video-game system. Ev- 
erywhere he went, he heard one name over and over again: Atari. 



\ 7 

REVERSAL v \ 

OF FORTUNE ^ 



In a conference room of the Sands Hotel in Las Vegas, in January 
1991, a Mendelssohn concerto played in the background as Irving 
Gould, CEO of Commodore International, the $900 million com- 
puter company, introduced Nolan Bushnell. The most persistent 
figure in California's Silicon Valley history, now forty-five years 
old, unfolded his Ichabod Crane frame from his chair and lum- 
bered to the podium. 

Though Bushnell once showed up at a top-level meeting of the 
directors of the company he founded, Atari, in a Black Sabbath 
T-shirt and sneakers, on that morning in Las Vegas he wore a dark 
six-button suit, shiny plum tie, and spit-shined English brogues. 
His mane — the dark mass of fusilli hair and beard that framed his 
face — had grayed, but the figure at the podium was still command- 
ing. He adjusted the microphone, placed his palms on the lectern, 
and began to evangelize. 

Bushnell, it was soon apparent, was on a new mission, preaching 



132 GAME OVER 

the gospel of multimedia through something called CDTV, Com- 
modore Dynamic Total Vision, the first available consumer prod- 
uct designed for multimedia. Multimedia was the latest buzzword 
in the consumer-electronics industry, predicted to be for the 1990s 
what personal computers were for the 1980s. It was a dramatic new 
technology that pulled together the wizardry of television, personal 
computers, compact disks, video disks, and video games. Key to it 
was the ability to interact with the programming that comes into 
the home. 

CDTV was a small, innocent-looking black box, much like a 
VCR machine, that plugged into an ordinary TV. It had many of 
the same capabilities as a computer, but it was neither intimidating 
nor complicated. It was operated with a palm-size remote-control 
unit. A half-dozen industry giants, from Philips to Apple, were 
exploring multimedia, but Commodore, a relatively small company 
among high-tech giants, was the first to launch a consumer product 
based on the technology. For Bushnell, it was not just new technol- 
ogy but a cause. He explained that the key to the new system was 
the ability to control virtually unlimited information. When a sin- 
gle compact disk was plugged into CDTV, a television became a 
library, one that included more than books — also pictures, even 
moving pictures, and sounds. In a CDTV encyclopedia entry on 
Dr. Martin Luther King, Jr., the civil-rights leader's biography 
came to life in high-resolution graphics and full-blown stereo 
sound. Bushnell asked, "What is the biography of Martin Luther 
King without his oratory?" King's "I Have a Dream" speech was 
available at the click of the remote control. 

"It's the combination of the audio record, video records, text, 
and the interactivity that control these items that make it happen," 
Bushnell explained. With a CDTV children's book, kids no longer 
would be passively fed television. They would influence the stories 
they were being told, choosing whether the hero would be a prince 
or a princess, or whether he or she would kill the dragon or be- 
friend it. All forms of media — movies, books, music — were becom- 
ing more like video games, which is why Bushnell was convinced 
that CDTV would revolutionize education. "A video game can 
teach geography and history as a player moves through the 



REVERSAL OF FORTUNE 133 

course," he said. "A game can teach complex decision making and 
critical thinking." 

Education, Bushnell said, was why he was so committed to 
CDTV. (It was silently understood that the other reason for his 
commitment was the high salary he was getting from Commo- 
dore.) The system could teach kids at their own pace and at a 
fraction of the cost of a computer with similar capabilities. Posters 
on the walls explained the vision of CDTV's promoters, darling, 

WOULD YOU ASK THE KIDS TO LOWER THE VOLUME ON THE ENCYCLOPEDIA? 

Another: now, turn on the tv and do your homework. 

Still, the future of CDTV was anything but guaranteed. Its re- 
trieval system was pretty sluggish, and the software available for it 
was limited, but there was, nonetheless, an audible buzz in the 
room when it was shown off. "This is multimedia at its best," 
Bushnell said. "It will revolutionize our lives." 

After applause, Bushnell stepped away from the microphone 
and headed to his seat next to Irving Gould. A reporter for a 
consumer-electronics trade journal in the audience whispered 
loudly, "Wasn't he the cat who was here a few years ago with 
something else he thought was going to revolutionize our lives?" 

Nolan Bushnell had been trying to revolutionize our lives so 
often that it was difficult to take him completely seriously. His life 
had been a roller coaster of revolutionary visions and promises — 
and the millions of dollars that come with them — but also the 
disappointments. 

In the early 1980s, he had had two fully decked-out Learjets to 
shuttle him between his Woodside, California, estate and his 
homes in Aspen, Georgetown, and Paris (where his palace's back- 
yard opened onto a view of the Eiffel Tower). When he wasn't 
sipping Dom Perignon above the clouds, he was often racing his 
sailboat, in training for the Transpac, one of the oldest yacht races 
in the world, which he won in 1983. When he took to the roads, he 
chose from among a Rolls, two Mercedeses, and a Porsche. 

At the time, there were few models for the kind of wealth and 
notoriety Bushnell had acquired so quickly and so young; he was 
the first of that generation of much-hyped super-successful high- 



GAME OVER 



tech entrepreneurs, the founder of one of the fastest-growing com- 
panies in history. 

Bushnell, the son of a cement contractor, grew up in a bleak 
outpost near the Great Salt Lake. When he was a child, he was 
already obsessed with innovation. "I read science fiction," he says, 
"and I really wanted to live there, without all the limitations we 
have in our world." He spent much of his youth in the family's 
garage, trying to create the things he read about. He was only six 
years old when he built a control panel for a spaceship out of an 
orange crate. He was the youngest ham radio operator in Utah — 
but not the shortest; he was six-foot-four by the time he was in 
seventh grade. When he launched a "UFO" he had made — a hun- 
dred-watt light attached to an enormous kite — he convinced a fair 
percentage of the local population that the planet was under at- 
tack. 

Another time he took a few shotgun shells, removed the shot, 
and, wearing a ski mask, drove a borrowed car up to a buddy of his, 
who was standing in the schoolyard among a group of their friends. 
Bushnell aimed and fired both barrels into his friend's chest. The 
boy smacked two handfuls of catsup against his shirt and fell to the 
ground. 

In college, at Utah State and later the University of Utah, Bush- 
nell studied engineering, economics, business, and philosophy. 
Once, when he had lost his tuition money in a poker game, he had 
to take work guessing people's weights and ages at an amusement 
park. Eventually he ran the arcade there. At college he often hung 
out in the school's computer lab playing a game called "Space- 
war," one of the first computer games ever made. 

Bushnell graduated with an engineering degree in 1968 and 
moved to California, where he worked briefly as an engineer in the 
computer-graphics division at Ampex. At home, meanwhile, in a 
laboratory he made in his daughter's bedroom (the little girl was 
exiled to the living-room couch), he created a simpler version of 
"Spacewar," which by then could be found on computers at most 
universities around the country. 

The game had been invented in 1962 by an MIT graduate stu- 
dent named Steve Russell (who based it on a series of science 
fiction space operas called Lensman, written by "Doc" Smith). 



REVERSAL OF FORTUNE 



Bushnell's version, "Computer Space," was made of integrated 
circuits connected to a nineteen-inch black-and-white television. 
Unlike a computer, it could do nothing but play the game, a primi- 
tive simulation of air combat between a spaceship and flying sau- 
cers. The key to Bushnell's invention was that since it didn't 
require a full-fledged computer, it could be produced relatively 
cheaply. He envisioned video games like his standing alongside 
pinball machines in arcades, pool halls, and bowling alleys. 

With hopes of having his machine put into production, Bushnell 
left Ampex for a small pinball-machine company, which manufac- 
tured 1,500 of them. They never sold, and Bushnell, then twenty- 
seven, left the company. He had determined that "Computer 
Space," which required players to read a full page of directions 
before they could play, was too complex. 

He set out to make a simpler game, and this time he would sell it 
himself. Kicking in $250 each, he and a friend formed a company 
they called Syzygy (from a word meaning the nearly straight-line 
configuration of three celestial bodies in a gravitational system — 
for example, the sun, the moon, and the earth). The name was 
already taken by another company, so Bushnell chose the Japanese 
word that was the equivalent of check in the game go: atari. 

In his home laboratory, Bushnell built a new game, "the easiest 
one I could think of. People knew the rules immediately, and it 
could be played with one hand, so people could hold a beer in the 
other." A "ball"— really a squarish dot of light— was batted back 
and forth by two inch-long paddles that were projected on a 
screen. The paddles, on the far sides of the "court," could be 
moved up and down when players twisted knobs on the front of a 
crudely built cabinet. "I made it with my own two hands and a 
soldering iron," Bushnell says. He named it "Pong," after the so- 
nar-like "pongs" that sounded each time the ball made contact 
with the paddle. 

In the fall of 1972, Bushnell placed "Pong," the first commercial 
video-arcade game, with a coin box bolted to the outside, in Andy 
Capp's tavern, a popular Sunnyvale pool bar that holds a place in 
Silicon Valley lore rivaled only by the garage in which Steve Jobs 
and Steve Wozniak invented the Apple computer. 

Set beside a pinball machine, "Pong" was an oddity, a dark wood 



1 36 GAME OVER 

cabinet that held a black-and-white TV screen on which cavorted a 
white blip like a shooting star in a black sky. One of the bar's 
patrons stood over the machine, examining it. "Avoid missing ball 
for high score," read the only line of instructions. 

The young man reached into his pocket, extracted a quarter, and 
slipped it into a slot on the console as he called a friend over. The 
machine, announcing its name with its trademark bleat, "served" a 
ball automatically from one side of the screen. The players missed 
the first few serves until they got the hang of the controls, but two 
bucks' worth of quarters later, they were having lengthy volleys. A 
crowd had gathered around to watch. There was a long line in 
front of the machine for the entire day, and the next day too. 

The "Pong" machine stopped working toward the end of the 
second day; the coin box was stuffed with so many quarters that the 
game had short-circuited. A new coin box (actually a casserole 
dish) was installed inside the machine. It took about a week to be 
filled to its capacity of about 1,200 quarters. Bushnell was ecstatic. 
His simple, monotonous game was bringing in $300 a week. The 
pinball machine that stood next to it was earning only about $30 or 
$40. 

Lacking the money to do a major "Pong" production run him- 
self, Bushnell approached the established amusement-game mak- 
ers, companies like Bally's Midway. The pinball companies 
unceremoniously showed Bushnell the door. He was left with two 
alternatives: he could either finance the venture himself or for- 
get it. 

To get some quick cash, Bushnell accepted jobs consulting for 
electronics companies, and he talked his way into a $50,000 line of 
credit with a local bank. Employing a band of long-haired techies 
whom he paid next to nothing, he started an assembly line in an 
abandoned roller-skating rink. The rowdy gang assembled ma- 
chines for twelve to sixteen hours a day as the Rolling Stones and 
Led Zeppelin blared from a staticky stereo system. Dan Van 
Elderen, a young engineering graduate who came on to assemble 
games, recalls that "there wasn't even a monitor business in those 
days. All the original 'Pong' games were built with Motorola TVs. 
We threw away the plastic case and the tuner and RF circuitry and 
used the raw tube and video drivers." 



REVERSAL OF FORTUNE 13 7 



Bushnell met potential customers, mostly distributors who han- 
dled pinball machines and jukeboxes, and was able to sell all the 
machines his small staff could make, about ten a day. If he was 
going to make any real money, however, he had to expand; he 
needed more cash. Banks and investment bankers declined to put 
up money because of rumors that Atari was connected to the Ma- 
fia. Also, they were worried about an inherent flaw in the whole 
idea of video games: people would steal the TVs from the con- 
soles. 

Investors whom Bushnell fast-talked past these concerns were 
turned off when they visited the company's site. Employees in 
ripped jeans and worn sneakers (if they wore shoes at all) worked 
whenever they wanted to. Staff meetings were a rarity. The 
founder wore T-shirts or flower-print shirts with polka-dot ties. As 
Steve Jobs, one of Atari's early employees, remembers, "The smell 
of marijuana ran freely through the air-conditioning system. A few 
of the people there had beards so large that I never once saw their 
faces." 

Bushnell was a consummate salesman, obnoxiously persistent. 
This and his immodest, even grandiose, vision— he projected sales 
of hundreds of millions of dollars — finally convinced one of the 
Valley's most astute and credible venture capitalists, Don Valen- 
tine, to back the company. The cash infusion allowed Atari to 
grow. Bushnell hired more staff and rallied his team with cheer- 
leading, charm, and anything else that worked— including lying; he 
persuaded one employee to work double-time on some revised 
circuitry for "Pong" by telling him that General Electric was wait- 
ing anxiously for units, even though GE had refused to return his 
calls. 

"We were all so young," he says. "I was in my twenties. My vice- 
presidents were in their twenties. Many of the people were teen- 
agers." Atari had a fund for "unwanted pregnancies" and another 
to bail staffers out of jail. The average age of the staff was so low 
that when Bushnell decided to get group health insurance, the 
rates for extraordinary benefits were dirt-cheap — "until everyone 
started getting braces," he remembers. "Not for their kids, for 
themselves]" 

A typical early staffer was Steve Jobs, who came on board when 



138 GAME OVER 



he was only seventeen. At the beginning of 1974, he had dropped 
out of Reed College and returned to his parents' Los Altos home. 
When he began looking for work, in a local newspaper he saw a 
help-wanted ad that read "Have Fun and Make Money." He vis- 
ited Atari. "We've got this kid in the lobby," Bushnell's partners' 
secretary announced one day. "He's either a crackpot or he's got 
something." 

Jobs, skinny, long-haired, with a Ho Chi Minh beard, filled out 
an application and listed all the things he had done — nothing rele- 
vant, as it turned out, except for some courses in engineering at 
Reed. "Don't call us, we'll call you," he was told. 

The phone rang the next day. Jobs became Atari's fortieth em- 
ployee. He was hired as a technician, earning $5 an hour. His first 
assignment was to help an engineer on a new game, "Video Bas- 
ketball." Atari was trying to model its games after field sports, for 
"Pong" circuitry was easily adapted to such simulations. 

Although Atari games were selling, Bushnell was in over his 
head and Atari's survival was continually precarious. "A lot of 
people don't understand that you can be successful and profitable 
and still not have enough cash; a growing company consumes tre- 
mendous amounts of cash," he says. 

The company literally couldn't afford the payroll twice one 
month. Don Valentine's money had helped build up production, 
but the returns lagged. A big success that followed "Pong" bailed 
them out. It was the first video car-racing game that was controlled 
by a steering wheel attached to the cabinet. The game, "Gran 
Trak," gobbled up quarters even faster than "Pong." 

A friend of Steve Jobs, Steve Wozniak, an engineer at Hewlett 
Packard, was a "Gran Trak" addict. Most evenings after work he 
headed to a pub, where he put great quantities of quarters, money 
he could not afford, into "Gran Trak." Jobs began to sneak him 
into Atari's production facility at night, where he could play the 
game for free. In exchange for the free-game time, Woz, a whiz 
with computers, helped out whenever Jobs hit a stumbling block 
with some particularly tricky circuitry. 

Bushnell found Jobs tactless on occasion, but he liked the head- 
strong young man and took him under his wing. Jobs was working 
in order to earn enough money to travel to India. Bushnell helped 



REVERSAL OF FORTUNE 



him by paying Jobs's expenses to Europe in exchange for a service 
call in West Germany. Some games Atari had shipped there were 
causing local TV interference. 

Jobs flew to Europe, adjusted the "Pong" games, and continued 
on to New Delhi, where he met a guru who shaved his head. He 
stayed in India for six months before returning to Palo Alto and his 
old job, and then was assigned to work on one of Atari's oddest 
games. "Gotcha" had been dreamed up in a brainstorming session 
during which a young technician joked that the joystick used to 
control most arcade games was a phallic symbol. The boy sug- 
gested that Atari try out a "female" game; "Gotcha" was the re- 
sult. On the game's console were two rounded mounds made of 
rubber that were squeezed to control game play. Insiders called it 
"the boob game." 

Dan Van Elderen soon moved from assembling games to design- 
ing them. He worked on a game called "Tank," in which two 
players blasted each other's tanks as they sped through an obsta- 
cle-filled maze. It was the first game that used ROM chips to store 
graphics data (there was still no microprocessor in video games). 

Other engineers refined a version of "Tank" that was a favorite 
of Bushnell's. As in the original game, each player controlled a 
tank that tried to seek out and destroy the other. When a success- 
ful hit was made, the on-screen tank exploded and the player con- 
trolling the disabled vehicle got an electric shock. "We did it so it 
wasn't lethal or anything," Bushnell notes. "But all of a sudden it 
was real Certain people really liked it." The company's legal de- 
partment, however, was not among them, and the game never 
made it out the door. 

Steve Wozniak came over to Atari to help Jobs build another 
"Pong"-based game for Bushnell called "Breakout." A paddle hit a 
ball against a wall of bricks that disappeared, one by one, when hit, 
until there were none left. Bushnell liked the game, but the cir- 
cuitry required too many expensive computer chips. He offered 
Jobs a bonus of $100 for every chip he was able to eliminate. Jobs 
made himself $5,000. 

When they weren't working their day jobs, Jobs and Wozniak 
were busy on their own, in the Jobs family garage. They built a 
makeshift computer — a circuit board, really — which they called 



GAME OVER 



the Apple I. Some of the parts had been lifted from Atari. The 
Apple I didn't do much, but when Wozniak showed it off at a 
computer club meeting and the result was orders for fifty of the 
contraptions, it dawned on Jobs that there might actually be a 
market for personal computers, and he left Atari to found Apple. 

Wozniak's interest was primarily technical; Jobs set about mak- 
ing the computer accessible to people. Together they added a key- 
board and memory, and Wozniak developed the disk drive and 
added a video terminal. Jobs hired experts to design an efficient 
power supply and a fancy casing, and thus was born the Apple II — 
and with it an entire industry. Needing investors, Jobs went to 
Nolan Bushnell and asked him to become a partner in Apple Com- 
puter. Bushnell unwisely declined. 

Jobs and Wozniak were only two of the computer and video- 
game industry executives who cut their teeth at Atari. A decade 
after Bushnell founded the company, there were Atari alums in 
high-level spots at Electronic Arts, Lucasfilm and LucasArts, Ap- 
ple, Microsoft, and a number of other companies. "It's because we 
provided a place for creative people to be part of something com- 
pletely new," Bushnell says. "These were people who wanted to 
create something intellectually stimulating and fun. They wanted 
to put their talent into making games, not bombs." 

Atari, meanwhile, continued to grow. In 1973, after six thousand 
"Pong" games were sold for more than $1,000 each, Bally 's Mid- 
way approached Bushnell with a huge offer to buy the rights to the 
game. Bushnell agreed, and Bally's sold about nine thousand more 
"Pongs." Atari now had eighty employees, "long-haired freaks, 
bikers and dropouts, hired not for their skills but on the basis of 
their good vibes," according to Scott Cohen in his book Zap! The 
Rise and Fall of Atari. Fortune reported that 100,000 "Pong"-type 
games were produced in 1974 alone. Although only a tenth of 
those were made by Atari ("Pong" was copied with abandon), the 
company earned $3.2 million that fiscal year. In the three years 
that followed, Atari sold $13 million worth of video games, includ- 
ing "Quadrapong," for four players, and "Puppy Pong," in a 
Formica doghouse. 

In 1974, after Atari's success with "Gran Trak," Bushnell de- 



REVERSAL OF FORTUNE 141 



cided to make a "Pong" system for the home. The trick would be 
to compress a coin-operated game down to a few inexpensive com- 
ponents. Magnavox had been selling a home video-game system 
for the past two years that had been created back in 1966 by Ralph 
Baer, a supervising engineer at a company called Sanders Associ- 
ates. Baer had come up with a game almost identical to "Pong" 
that played on a seventeen-inch RCA color set, but Sanders did 
nothing with the technology until Magnavox licensed it. 
Magnavox's Odyssey used Mylar overlays taped to the TV screen 
that depicted different game boards or playing fields. One hundred 
thousand Odysseys sold in 1972, its first year on the market. 

Atari's home "Pong" had a sharper picture and more sensitive 
controllers than the Magnavox system, and it also cost less. Still, 
when Bushnell showed "Pong" off at toy shows, none of the major 
chains showed interest. Dejected, he returned to Atari with no idea 
where to turn next. Then the buyer for the sporting goods depart- 
ment of Sears Roebuck came to see him, and before he left, he had 
offered to buy every home "Pong" game Atari could make. 

With the backing of Sears, Bushnell had the ability to boost 
Atari's production capacity. The retailer mounted a major televi- 
sion ad campaign, and Atari's 1975 sales shot up to almost $40 mil- 
lion. Bushnell spent as much of it as he could — on parties, 
expensive suits, and sports cars. "We were absolutely no more or 
less irresponsible or crazy than Ross Johnson and those guys at 
RJR Nabisco," Bushnell says. "The only difference is they were 
running corporate America." 

Arcade games became more sophisticated when microproces- 
sors dropped in price by the mid-1970s. Dan Van Elderen was part 
of the team that built Atari's first microprocessor-based game, 
"Sprint," a driving game with oncoming traffic that required realis- 
tic, quick reactions. Up until this point, Atari had basically been a 
hardware business. With microprocessors — which used stored in- 
formation from programs as needed — software became integral to 
video games, and rooms full of programmers were hired. 

With income from the arcade games, the deal with Sears, and 
more venture-capital money, Atari was poised to expand and take 
on the competition. By the end of 1976, twenty different compa- 
nies, from RCA and National Semiconductor to Coleco, were 



GAME OVER 



making home video-game systems, each trying to outdo the next 
with marketing dollars and technology. When Fairchild Camera 
introduced the first full-color system with changeable cartridges 
(created by Alpex), Atari's entry had to be that much better. It was. 
Atari's engineers assigned their new products code names. Their 
programmable video-game system was Stella, named after a 
woman in the personnel department. Officially named the Atari 
2600, it was a powerful and inexpensive machine, but the outlay 
required to manufacture and market it on a big-league scale was 
beyond Bushnell. He considered going public but decided to try to 
find a corporate investor first. 

MCA and Disney declined. It would be a year or two before the 
likes of Sid Sheinberg fathomed the significance of the new video- 
game industry. Warner Communications, on the other hand, ap- 
proached Bushnell. 

Steve Ross, the company's silver-haired chairman, who later 
drove the Time Inc.-Warner Communications merger, heard from 
one of his executives that Atari was looking for investors. Ross 
knew about Atari. Once, at Disneyland, he had briefly lost track of 
his kids. When he found them they were gathered around an Atari 
video game called "Indy 8," an eight-player road-race game. "His 
family was hypnotized and he sat there and watched the machine 
suck up quarters," according to Manny Gerard, the executive who 
told Ross that Atari was looking for an investor in 1976. 

Gerard saw the video-game business for what it was: the com- 
puter, entertainment, and consumer-electronics businesses rolled 
into one. "I saw the 2600 in an Atari lab and said, 'Holy shit! This 
is going to take over the world.' " He convinced Ross that Warner 
should not make an offer to invest in Atari but rather buy it out- 
right. When Ross gave him the okay, Gerard negotiated with Bush- 
nell and his highest-ranking cohorts. 

At first, the Atari team said they weren't interested in an acquisi- 
tion, but it was more a pose than anything. "We were exhausted," 
Bushnell says. "The offer from Warner was a relief." The size of 
the offer encouraged them too, and a deal was struck. Warner paid 
$28 million, a pretty good return on Bushnell's $250 investment. 
Bushnell and his friends made a fortune, and anyway, the deal had 



REVERSAL DF FORTUNE 



him stay on as chairman. Bushnell reportedly said, "I've always 
been telling people I was a millionaire. Now I am." 

The relationship, however, was ill-fated. "I should have known it 
wouldn't last," Bushnell says. "It just wasn't fun anymore when it 
wasn't mine." He worked under Gerard for two years, but he had 
lost his focus. Gerard claims that Bushnell spent more time man- 
aging his personal investments than running Atari. "He wanted the 
business, wanted to run it, but didn't want to come to work," 
Gerard says. 

When Bushnell did, he clashed with the Warner management on 
most issues. He says he wanted Atari's new computer, the 800, to 
blow the inferior Apple II out of the water (partly as revenge, after 
he passed up on the opportunity to be a founding partner in Ap- 
ple). However, while Steve Jobs was encouraging developers to 
write programs for the Apple II, Atari threatened to sue anyone 
who tried to make software for the 800. If customers wanted a 
spreadsheet or word processor for the 800, they had to buy Atari's. 
Meanwhile, outside developers came out with software for the 
Apple II— VisiCalc spreadsheet, for one— that sold millions of the 
machines. 

Bushnell also disagreed with Warner's handling of the video- 
game business. He felt their huge stock of 2600s should be dumped 
for cost because Atari would make its profits on software, but 
Warner management vetoed the idea. 

Atari was poised for a big year in 1978, but so were National 
Semiconductor, Fairchild, General Instrument, Coleco, Magnavox 
(which had released Odyssey 2), and a dozen other companies. 
The Christmas season came and went, and few consumers, perhaps 
because they were confused by all the choices, brought video 
games home that year. Of all the entrants, only Atari and Coleco 
survived, and Atari was in shambles. 

Manny Gerard, who had to answer to Steve Ross, put the screws 
to Bushnell, who was never known to respond well to anyone else's 
ideas, never mind anyone else's ideas about his company. "You 
can't rule by the divine right of kings," Gerard told him, where- 
upon Bushnell stopped returning Gerard's calls. 

Gerard decided to bring in someone new to run Atari. He chose 



GAME OVER 



Ray Kassar, a former marketing vice-president from Burlington 
Industries. Kassar was as buttoned-down as Bushnell was north- 
ern-California-casual, and a clash was inevitable. 

Bushnell, his necktie flying over his shoulder, arrived late to the 
November 1978 annual budget meeting at Warner's headquarters 
at 75 Rockefeller Center in New York. Winded and pink-cheeked, 
he threw his jacket onto a coffee table and plopped into the only 
empty chair, at the far end of the marble conference table. He 
looked carefully around the table at the Warner brass, who began 
"the inquisition," as he remembers it. They wanted to know what 
Bushnell planned to do in the coming year with their subsidiary 
(which was generating $250 million in sales but no profits). 

Bushnell let loose, attacking virtually everything Manny Gerard 
and Ray Kassar wanted to do. First, Atari should fold its sinking 
pinball-machine business. Second, Atari shouldn't even think 
about launching the 800 computer unless it changed its policy and 
encouraged software companies to create programs for the plat- 
form. Third, the 2600's price should be slashed. Warner, he said, 
should invest whatever it took in during the short term for the 
profitable long-term business. Greed would destroy the company. 

Manny Gerard was outraged that Bushnell had aired his dissatis- 
faction in front of the Warner bosses. "Man, was he pissed off," 
Bushnell says. Gerard says he was countering Bushnell's "bullshit 
and lies." Gerard contradicted everything Bushnell said. He said 
that Bushnell was the one who was going to sink Atari. The two 
shouted each other down. In the end, as Scott Cohen writes, "Ge- 
rard yelled louder." 

After the meeting, the two men met. Gerard said, "You don't 
believe in the program. Maybe you should leave." 

Bushnell did: with $1 million cash, about $12 million in deben- 
tures (which Warner eventually bought back), a $100,000-a-year 
salary, and bonuses and options. The only condition was that he 
couldn't compete with Atari for the next seven years. "They saw 
me as an extremely creative gamer as well as a strategist," Bushnell 
says. "They knew that I at least might be right, and they didn't want 
me to be able to shove it in their faces. They were also afraid 
because I had tremendous relationships with all the engineers. 



REVERSAL OF FORTUNE 1 A 5 



They thought the engineers would leave Atari and we'd go up 
against them and blow them away." 

When he made his original deal with Warner, Bushnell retained 
some technology that Warner didn't want to pursue. One example 
was Chuck E. Cheese Pizza Time Theater. Relieved to be severed 
from any obligation to Warner, Bushnell charged headlong into 
building Chuck E. Cheese. 

By 1981 there were 278 Chuck E. Cheeses, each bringing in 
more than nine times the profits of a typical pizza-chain restaurant 
(Nintendo's franchise opened in Vancouver in 1983). Bushnell was 
coining money, and his net worth escalated into the $100 million 
range. He began to collect jets and homes the way other people 
collect Depression-era glass. His first Learjet cost him $4 million. 
He named it Danieli, after the hotel in Venice where he and his 
second wife spent their honeymoon. Bushnell delighted in jetting 
around the globe, sometimes shuttling such famous passengers as 
George Bush and Francis Ford Coppola. When he visited a place 
he liked, he bought a home there. 

But Bushnell became bored with jet-setting and only one busi- 
ness in the works. "I studied a lot of philosophy when I was in 
college," he says. "I learned a Kierkegaardian dialectic that postu- 
lates that the prime mover in the universe is boredom: God was 
bored, so he created the universe, and then man and woman. 
Woman was bored, so she ate the apple in the Garden of Eden. 
For me, boredom is a prime mover. I go from being bored to being 
completely hassled and harried, because I always bite off more 
than I can chew. And it gets worse as I get older, because now I 
know how to follow through on ideas. I'm in real trouble whenever 
I get obsessed with two or three new things." 

This time boredom led to the founding of Catalyst Technologies 
in Sunnyvale later in 1981. Bushnell called it his "fifty-thousand- 
square-foot incubator," where over a dozen independent compa- 
nies worked on projects he financed. The idea, he said, was to 
"fund a company with a key, not a check"— a start-up would im- 
mediately have an office, receptionists, copy machines, telephones, 
and everything else it needed. In return for all this, plus cash flow, 
Bushnell owned a large share of all Catalyst companies. 



GAME OVER 



Cinemavision made a color monitor with four times the resolu- 
tion of standard televisions. TimberTec was a computer camp for 
kids. ByVideo was a mail-order computer network company 
through which one could, say, order shoes via a video "catalogue." 

Other Catalyst companies included ACTV, an interactive cable- 
television system in New York City which had a fancy remote 
control that allowed you to choose not only the camera angle from 
which you watched a baseball or football game but the fates of 
characters in TV movies. Another company, Compower, made 
computer products. Bushnell rescued a company called Axlon, and 
with it began manufacturing the Playskool Baby Monitor, which 
allowed parents to listen in on their sleeping infants. Axlon also 
came out with Petsters, robotic cats and dogs that ran around the 
house, and AG Bear, which echoed back spoken patterns in a 
gravelly grumble. IRO did skin care and color analysis electroni- 
cally. Magnum Microwave made components for the government 
(for the Tomahawk missile) and other industrial customers. Then 
there was Sente, which created video games that incorporated ho- 
lograms and video disks. Bushnell planned to pit Sente against 
Atari when the noncompetition agreement expired. 

"I put the first dollar in all those companies," Bushnell says. It 
was a way for him not just to have dozens of ideas, but to give them 
life. His choice of the name Sente summed up part of what drove 
him. As Atari meant "check" in go, Sente meant "checkmate." 

Some Catalyst companies were particularly brilliant. ETAK cre- 
ated the technology for TravelPilot, the first electronic car map to 
be sold commercially. A small TV-like screen displayed maps 
stored on CDs. When you typed in your present location and desti- 
nation, street maps showing the best routes appeared. As you 
drove, the maps shifted to show the car's progress. It told where 
you were with an electronic compass, which tracked you, based on 
information from sensors on the wheels. Bushnell said he expected 
there to be a map system in every car in the country. 

Of all the Catalyst companies, Bushnell's favorite was Androbot, 
which built "intelligent" robots for domestic use— robots that 
could learn from their experience. Information from nine or ten 
infrared and sonar sensors were processed through the robot's 
computer so that it would seek out human beings, learn the layout 



REVERSAL OF FORTUNE 14 7 



of a room, and perform an increasing number of useful tasks. 
Bushnell became obsessed with robotics. Androbot, he said, would 
be his "billion-dollar company that's going to last forever." But 
though his vision of a personal robot may someday come to be, it 
will happen without Bushnell. After he had spent $12 million of his 
own money, Androbot imploded. 

So did other Catalyst companies. He sold IRO for a huge loss. 
"It turns out that women don't want scientific rigor in their 
beauty," Bushnell says. He ended up selling Sente for $3.5 million 
to Bally's Midway in order to raise cash for Pizza Time. Another 
failure was a liquid-crystal display business. ACTV was sold, al- 
though Bushnell retained some interest. Axlon, the toy company, 
went public the year that seventeen other toy companies went 
bankrupt— primarily because kids quit buying toys and started buy- 
ing video-game systems made by a newcomer in the U.S. market, 
Nintendo. 

Bushnell kept Axlon out of Chapter 11 but downsized it and 
made it into a licensing company. Eventually, an ETAK-like sys- 
tem will be in every car as standard equipment, or at least as an 
option, but Bushnell will not be the one to get rich from it. Rupert 
Murdoch bought ETAK (for $35 million) in 1985 and licensed the 
technology to Blaupunkt. 

In the early eighties, at the height of Chuck E. Cheese's success, 
Bushnell, still fighting boredom, was spending less and less time at 
the helm of his company and more and more time at the helm of 
his yacht. "I was living rich," he admits. "A certain amount of 
hubris developed. All of a sudden you start thinking you can do no 
wrong. You've created one mega-enterprise. The next turns into 
another mega-enterprise and you have $200 million. Hell, no 
sweat. Why can't I buy whatever I want? You get sloppy. I took my 
eye off the ball." 

That is, he went sailing. In 1983, he was racing in the Transpac 
and was out of touch with the staff that was running Chuck E. 
Cheese. When his boat sailed into Waikiki, taking first place, there 
was much fanfare, champagne, and cheering. Eventually Bushnell 
made it to a pay phone, but he was unprepared for what he heard. 
Chuck E. Cheese was going down the tubes— the company had to 
write off a $10 million quarterly loss. Bushnell didn't wait around 



14B GAME OVER 



to pick up his Transpac trophy and flew home, but it was too late. 
The company's board wanted to bring in a corporate doctor, and 
Bushnell resigned. Now he says it was the worst business decision 
he ever made. 'Tm very tenacious," he says. "I believe I could 
have saved Chuck E. Cheese without going bankrupt." Six months 
after he left, Pizza Time was in Chapter 11 and his millions of 
shares were worthless. "It was like my luck was all used up," he 
says. 

Chuck E. Cheese was merged with a hotel chain that eventually 
turned the company around (although the original Sunnyvale loca- 
tion became a dim sum restaurant). Bushnell, however, was left to 
face some harsh realities. He had to sell his jets, his yacht, and all 
but his Woodside and Aspen homes. "I was flying much too high to 
be brought down by a small arrow; it took a three-stage rocket, 
because I was in the stratosphere," he said. "I believed I could do 
no wrong." It was time for some soul-searching. He sat in his office 
in the dark, staring out the window. His cash flow, as he puts it, was 
tight. Chuck E. Cheese and Androbot were gone. He contem- 
plated the future. "What's next, big boy?" he asked himself. 

An industry insider who knew Bushnell believed that he was 
bitter about his sudden decline. "It's very sad," he says. "Steve 
Jobs worked for Nolan. Nolan should be Jobs, or Bill Gates. It eats 
away at him." Still, Bushnell was philosophical. "I've had a multi- 
plicity of MBAs in the school of hard and soft knocks," he says. 
"I've had some tremendous lucky breaks and some unkind breaks, 
but it's never been dull." 

As difficult as it was to imagine for many of those who worked 
with him, by 1990 the godfather of all the Silicon Valley boy-won- 
der entrepreneurs had to get a job— which is where Commodore 
came in. They wanted Bushnell on board to sell CDTV. 

Meanwhile, the industry Bushnell had founded was thriving. By 
1978, Americans were spending more than $200 million a year on 
home video games. By 1981, the amount had increased to $1 bil- 
lion. Mattel had entered the fray with Intellivision. In 1982, video- 
game sales skyrocketed. Atari accounted for half of the revenue 
for Warner Communications and more than 60 percent of its oper- 
ating net. 



REVERSAL OF FORTUNE 149 



It seemed as if Atari could do no wrong. The 2600 was every- 
where; 20 million units were sold, and there were 1,500 games 
available for it. Activision, Epyx, and many other independent 
companies began making millions manufacturing game cartridges 
for the 2600. Coleco came up with its strong competitor, ColecoVi- 
sion, which promised, for the first time, arcade-quality video games 
on a home screen. With an expansion module, ColecoVision was 
able to play all the Atari 2600 cartridges. ColecoVision sold well, 
partly because it played a home version of one incredibly popular 
arcade game it licensed from Nintendo: "Donkey Kong." 

Soon Mattel and Atari were making ColecoVision games for 
their own systems. Milton Bradley tried to keep pace with Voice 
Command video-game cartridges tied to the Texas Instruments 
99/4A home computer, but the attempt fizzled. It was the excep- 
tion in a rapidly expanding market: the home video-game business 
was bringing in over $3 billion a year. 

Arcades, meanwhile, were bringing in even more: $5 or 6 billion, 
in spite of a backlash against them. Communities as far apart as 
Babylon, Long Island, Oakland, California, and Pembroke Pines, 
Florida, passed ordinances restricting play by teenagers of various 
ages. The United States' surgeon general, C. Everett Koop, issued 
a statement indicting video games for producing "aberrations in 
childhood behavior" and causing users to become addicted "body 

and soul." 

But video games were sweeping the world. "Fascination with the 
games, often accompanied by cosmic brooding about their pre- 
sumed bad effect on faith, morals and school attendance, seems to 
be universal," wrote John Skow in Time in 1982. The article re- 
ported that games such as "Asteroids," "Defender," "Missile 
Command," "Pac-Man," and "Donkey Kong" were consuming, in 
addition to all those quarters, 75,000 man-years in the United 
States alone. 

Yet Nolan Bushnell's timing in leaving Atari was fortuitous. The 
company fell further and further behind Apple in computers, and 
then its bread and butter, the video-game business, crashed. 

Bushnell winces when he remembers some of the mistakes Atari 
made under Warner. "The number of horrendous management 
decisions that went on in that place is amazing," Bushnell says. "A 



GAME OVER 



lot of people got involved with the company who really were un- 
derqualified, and there was a tremendous revolving door of vice- 
presidents. The company had been very successful, but nobody 
really knew why. All they were doing was pumping out cartridges 
and selling millions of units, but there was no strategic thinking 
going on." 

By 1983, the $3 billion video-game industry had turned into a 
trickle — $100 million in sales for the entire industry— yet Atari and 
dozens of other companies were still churning out games by the 
millions. Bushnell says it was "an absolutely unconscionable screw- 
up" on the part of Atari that destroyed the video-game industry. 
"They expected the market to double when all rational thought 
said that it couldn't. The red ink poured forth." This devastated 
Warner Communications. Its stock went into a tailspin, plunging 
the company into a takeover battle with Rupert Murdoch. Steve 
Ross announced that Atari's troubles were responsible for 
Warner's announcement of a $283.4 million loss for the second 
quarter of 1983, "the worst in the company's history and triple 
even the most pessimistic Wall Street forecasts," according to The 
Wall Street Journal. 

Inventory levels were mammoth. Atari built and then bulldozed 
almost 6 million "ET: The Extraterrestrial" games. Even more 
astounding, after licensing the game from Namco, Atari built more 
"Pac-Man" cartridges than there were players. 

With the ludicrous number of games in inventory, prices were 
slashed. During the years of the decline, total unit sales actually 
increased, but the dollar sales went to a tenth of what they had 
been. "Atari hit two billion in sales, and that third year they were 
going for three," Bushnell says. "And that was why they hit the 
wall running as fast as they could." Bushnell made a substantial 
amount of money shorting Warner stock. 

"Very seldom do you have an industry in which the dominant 
player not only abandons leadership but abandons the industry;' 
Bushnell says. "There was nothing left. Basically they retrenched, 
retrenched, retrenched, and didn't really try anything innovative. 
Nobody had enough cash to do anything for a long time. There was 
not a single innovation in product line at Atari after the day I left. 
Everything they did was just variation on the chip sets and the 



REVERSAL OF FORTUNE 151 



business I created. Atari abandoned the game market to Nintendo, 
pure and simple, and it abandoned the computer market to Apple 
and then IBM." 

The dumping and discounting of cartridges eroded the market, 
and Atari and Mattel nearly went bankrupt. Coleco did better, but 
not because of video games. It released Cabbage Patch Kids and 
sold, in all, more than half a billion of them. 

The year Atari recorded losses of $200-$300 million, Ray Kas- 
sar, who, as Atari's chairman, was running everything for Warner, 
needed to find a way to keep things going in a video-game market 
that had suddenly vanished, as well as in the rough-and-tumble 
computer business. He tried a number of things, several of them 
having to do with a certain company that had been doing phenom- 
enal business in Japan. 

Nintendo's dealings with Atari began when Atari licensed "Don- 
key Kong" for its home computer. Kassar and Skip Paul, Atari's 
senior vice-president, invited Minoru Arakawa and Howard Lin- 
coln to their Silicon Valley offices for a meeting. Arakawa and 
Lincoln met with a dozen vice-presidents ("of everything imagin- 
able," Lincoln says), twenty executives in all, in the corporate din- 
ing room. Kassar boasted that his chef was from one of the best 
restaurants in the world, and the meal was exquisite. 

The meeting paid off; Atari licensed "Donkey Kong" for the 
800. And because Hiroshi Yamauchi was pleased with the way the 
negotiations had gone, one day he called Arakawa and suggested 
that Nintendo approach Kassar to see if he was interested in buy- 
ing the worldwide rights to the Famicom. Yamauchi's idea was that 
Nintendo would sell the machine in Japan, but Atari, which al- 
ready had a worldwide distribution network, would sell it in the 
United States, Europe, and elsewhere. The benefit would be more 
than a per-unit royalty. Nintendo, which on its own might never be 
a contender outside Japan, would, as a partner of Atari, be able to 
sell software all over the world. 

Atari's 2600 was outdated and the 5200 was going nowhere. 
There was a rumor that Atari was working on another, more pow- 
erful system, the Atari 7800, but Yamauchi was confident that his 
success in Japan carried far more weight than anything in Atari's 
R&D labs. 



152 GAME OVER 



Arakawa made the pitch to Kassar, who decided that his propo- 
sition made sense. He either could release Nintendo's Famicom 
under Atari's name or sit on the Famicom and do away with a 
potential competitor. 

A meeting was set up and Kassar told Arakawa he would send 
the Warner Communications corporate jet, a Gulf Stream, to col- 
lect him and Howard Lincoln. En route to the airport, Arakawa 
asked Lincoln if he expected lunch to be served on the plane. 
Lincoln said there would probably be no food on the short hop 
between Seattle and Sunnyvale. Arakawa was starved, so the two 
headed to a restaurant before meeting the jet at a private airport. 

The jet, fitted with leather couches and gold-plated ashtrays, was 
empty except for Arakawa, Lincoln, and the crew. Once it was 
airborne, the pretty attendant set up dining tables with linen table- 
cloths and asked if the two were ready for lunch. Arakawa threw 
Lincoln a dirty look when she served pate, fresh poached salmon, 
and Dom Perignon. 

"Just eat the goddamn food," Lincoln muttered. 

When the jet landed in San Jose, two chauffeurs escorted the 
Nintendo executives down a stairway into a waiting limousine. 
They drove to Atari's headquarters, where they were led to a con- 
ference room. The entire upper-management staff was assembled, 
from Warner's Manny Gerard and Kassar to Atari's Skip Paul and 
numerous lawyers and vice-presidents familiar from the "Donkey 
Kong" negotiations. In the middle of the meeting, Steve Ross 
poked his head in to say hello. He wanted to apologize for the fact 
that he had to use the company's jet to go back to New York; he 
had, he said, rented another jet to take Arakawa and Lincoln back 
to Seattle. 

The meeting began with Arakawa's description of the Famicom. 
Questions came from Gerard and Kassar, at the far end of the 
conference table, but also from each of the dozen lawyers and 
executives. Scribbling notes and fielding most of the questions, 
Lincoln watched Arakawa. "I can always tell when he understands 
something or doesn't, when he's pissed off or when he's happy," 
Lincoln says. "This time Arakawa was just amazed by all those 
people, all that bureaucracy." 

Arakawa and Lincoln left the meeting exhausted and uncertain 



REVERSAL OF FORTUNE 153 



of how much progress they had made. Back at the airport, where 
they boarded the smaller jet Ross had arranged for them, they 
were trying to relax and sort out the meeting when the copilot 
came back to tell them, "Mr. Ross left you some wine." An atten- 
dant served them bottles of a rare Bordeaux. "I don't know how we 
got home," Lincoln recalls. "We still had a buzz the next day." 

The next step was for Atari to see the Famicom. Skip Paul, along 
with half a dozen Atari managers, joined Yamauchi, Arakawa, and 
Lincoln in a conference room at NCL in Kyoto. The system was 
demonstrated by Masayuki Uemura, who explained, through an 
interpreter, why it was better than any that preceded it. 

Yamauchi came and went several times during the meeting. He 
used this disappearing act as a diversionary tactic: he wanted ev- 
eryone to believe that he had far more important business going on 
elsewhere. 

At the end of the first day of meetings, Yamauchi had so success- 
fully confused the Atari delegation that Paul called Lincoln at his 
hotel to clarify some issues. Yamauchi had Atari manufacturing 
the machines at very low cost. They would have the worldwide 
rights outside Japan, and they would have software support from 
NCL. Nintendo would receive a relatively large royalty on each 
machine. 

Throughout the week there was persistent haggling over per- 
centage points of royalties, but Yamauchi was getting everything 
he wanted. Finally Lincoln used one of Yamauchi's dramatic disap- 
pearances to full effect: he said that Yamauchi was growing impa- 
tient. The deal had better be sewn up immediately or Yamauchi 
might decide to forget the whole thing. "You don't want Mr. 
Yamauchi to become annoyed," Lincoln said. 

At the eleventh hour, the Atari negotiators retreated to a private 
office to telephone Ray Kassar in California, who was in touch with 
Manny Gerard in New York. Yamauchi came back into the room 
with Arakawa and Lincoln. Lincoln said, "Mr. Yamauchi, you 
shouldn't be in here. If the Atari people come back in and you're 
here, they'll take it as a sign that you are overanxious." 

The chairman gave Lincoln a look that instantly humbled the 
cocky attorney. Yamauchi had his own negotiating tactics; he 
didn't need an arrogant young lawyer from America to tell him 



GAME OVER 



what to do. He remained in the room as the Atari team returned. 
Paul said that the deal was as good as done and asked Lincoln to 
write up the contracts. They would all meet again in a month at the 
June Consumer Electronics Show in Chicago to sign the papers. 
Yamauchi rose and left the meeting. Handshakes and backslapping 
signaled that the negotiations had been a success. 

Yamauchi flew to Chicago for the CES, which he attended with 
Arakawa and Lincoln. In the convention center, they walked past 
Coleco's booth, where the company was showing off its new home 
computer, Adam, set in an artfully lit glass case. There, playing on 
the sharp color screen, was "Donkey Kong." 

Coleco's stock shot up almost twenty points that day, and Atari 
was not amused when it saw the Nintendo game playing on its 
competitor's machine. 

Ray Kassar's office sent a tersely worded letter to Arakawa 
threatening not only to cancel the deal Skip Paul had made, but 
also legal action. Atari, which owned the floppy-disk computer- 
game rights to "Donkey Kong," thought that Nintendo had 
double-crossed them and sold the game to Coleco. 

Howard Lincoln arranged an emergency meeting with Coleco's 
president, Arnold Greenberg, that night in Nintendo's hotel suite. 
Present when the meeting began were Minoru and Yoko Arakawa, 
Ron Judy, Howard Lincoln, and, representing Coleco, Greenberg 
and several of his colleagues. There was also a translator. 

Everyone sat around a table. Arakawa whispered to Lincoln, 
"Don't say anything. Mr. Yamauchi will do this." 

Arnold Greenberg, a distinguished-looking man, gray at the 
temples, ready to celebrate because of the computer Adam's ap- 
parent success, asked where Yamauchi was. Yoko assured him that 
her father would be there in a moment. 

Yamauchi entered the room abruptly and, without addressing 
anyone, stood at the end of the table. He became, as one of those 
present put it, "unglued." 

He began with a breathy, high-pitched tirade in a Marlon 
Brando monotone and quickly became loud and abusive. With a 
piercing cry, he swung his arm in an arc in front of him, shooting 
his outstretched index finger toward Greenberg. 



REVERSAL OF FORTUNE 



Yamauchi's diatribe, all in Japanese, completely stunned every- 
one in the room, with the possible exception of the Arakawas. 
Howard Lincoln says, "It scared the hell out of me." 

The Coleco people weren't aware that they had messed up Nin- 
tendo's lucrative Atari deal — millions of dollars were in the bal- 
ance—but they could see that they had somehow incurred 
Yamauchi's unfathomable wrath. When Greenberg turned to 
Arakawa for help, he was met with a cold stare. By the time 
Yamauchi wound down, no one in the room said a word. 

The translator finally began to speak. "Mr. Yamauchi is very 
upset," the man said. 

This understatement underscored the fact that the Coleco team 
could have no recourse but to roll over. The translator continued, 
calmly reciting the gist of the outburst, but Yamauchi had already 
won. Greenberg's excuses — he said that Coleco considered the 
Adam a computer with a video-game machine inside— were feeble. 
He then tried to turn it on Lincoln, blaming him for "the misun- 
derstanding." This made Lincoln furious; he was about to jump up 
to respond when he felt Arakawa firmly grasp his forearm, holding 
him still. 

Yamauchi spoke again, never wavering. He made it clear that 
there was nothing else to be said. No excuses would be listened to. 
Coleco had to refrain from selling "Donkey Kong" on Adam and 
announce the mistake, or there would be a lawsuit that would leave 
nothing of the company. There was no doubt that he meant it. 

Greenberg and his colleagues retreated from the suite, shaken. 
Afterward, at dinner in the hotel's Japanese restaurant, Yamauchi, 
his tie loosened, turned to Howard Lincoln, who was still in a state 
of shock, and said, "Sometimes this is the way you have to handle 
people, Mr. Lincoln. What did you think about that perfor- 
mance?" 

The Coleco imbroglio ended up being irrelevant to Nintendo's 
deal with Atari, which fizzled out of its own accord— mostly be- 
cause Atari was itself unraveling. A month after the CES, in July 
1983, Ray Kassar was axed from Atari. 

In September, Manny Gerard hosted a meeting between Atari, 
Nintendo, and Coleco in his office at Warner in New York. Skip 



1 5B GAME OVER 

Paul and his staff came in from California. Arnold Greenberg and 
the Coleco bigwigs were there, as were Minoru Arakawa and How- 
ard Lincoln. 

Gerard's office, with inlaid wood paneling, had a ticker-tape 
machine spewing out the latest market numbers and a bank of 
telephones with some sixty lines. Gerard explained that he was 
changing the office's decor — some new artwork was expected any 
day. As Arakawa took all this in, he knew that Warner was also 
laying off hundreds of employees and losing a fortune each quar- 
ter. 

At the meeting a tentative compromise was agreed upon — 
"Donkey Kong" was divvied up so that Atari's deal with Nintendo 
could proceed — but the issues soon became academic. Coleco's 
Adam was a disaster and soon disappeared, and Nintendo learned 
(from an attorney who left Warner) that Atari never had the 
money to buy the Famicom; the negotiation was a charade orches- 
trated to tie Nintendo up and remove a potential competitor and 
perhaps to learn something new about video-game hardware and 
software. When the message reached Minoru Arakawa that the 
Atari deal was dead, he thought it was a disaster. He called 
Yamauchi with the bad news. Potential millions had slipped 
through their fingers, he felt. 

The event, however, was seminal. Years later Arakawa said, 
"Can you believe that we almost sold the whole thing? If we had, 
no one outside of Japan would know about Nintendo." 

Any remnants of the home video-game business in America all 
but disappeared. In 1984 Mattel sold off its electronics division. 
Arnold Greenberg folded Coleco. At Atari, to replace Ray Kassar, 
Manny Gerard brought in Jim Morgan from Philip Morris, where 
his background in marketing cigarettes hardly prepared him for 
the video-game business. Morgan bragged to employees that his 
seven-year, multimillion-dollar contract gave him the freedom to 
run the company any way he saw fit. 

However, as a former Atari executive told Business Week, 
"Rome was burning and he was fiddling around." Atari reported a 
$536 million loss in the first nine months of 1983. Games that were 
meant to be priced at $40 were selling for $4. Morgan consolidated 



• REVERSAL OF FORTUNE 157 

Atari's forty offices around Silicon Valley to about twenty-eight 
and killed all but nine of Atari's new development projects. He let 
go a quarter of the company's employees. But the cuts were too 
little too late. Steve Ross, whom Morgan once called "the best man 
with numbers I have ever seen," had had enough. Atari was taken 
away from Morgan on July 6, 1984. He was never told that Steve 
Ross had decided to break up Atari and sell its pieces. 

Atari's hardware divisions — the video-game systems and com- 
puters—were sold to Jack Tramiel, founder of Commodore Busi- 
ness Machines, for $240 million in notes (Warner retained 25 
percent of the company). Tramiel believed that his new company, 
called Atari Corporation, could go up against Apple and Commo- 
dore. He had been virtually kicked out of Commodore, and he 
imagined a sweet revenge. Since Tramiel, who planned to run Atari 
with his three sons, had no interest in the coin-op business, Warner 
sold it to Masaya Nakamura, and Atari Games became a subsid- 
iary of Namco. Under the agreement Atari Games could do any- 
thing except make hardware or software that competed with 
Tramiel's Atari Corporation under the Atari name. 

"I look at it sadly," Nolan Bushnell says, surveying the devasta- 
tion of the company he founded. "You can't help but have a cer- 
tain feeling for a name that you chose out of the universe." He 
adds, "See, Atari could have been Nintendo and Apple under one 
roof." 

The home video-game business was dead. The consensus was 
clear: no one in America wanted anything to do with video games. 

But Minoru Arakawa, picking through the rubble, noticed that 
there was one group of people who were oblivious to all the death 
notices and eulogies. Video arcades were still packed, bringing in 
more money than first-run movies: billions of dollars. Perhaps, 
Arakawa wondered, it was not a lack of interest in home video 
games that had killed off the American industry. Perhaps it was the 
kind of sloppy business he had witnessed during his glimpses inside 
Atari and Warner that was to blame. 

He decided to find out. 



\ 



\ 



\ 8 

ENTER THE \ v 

DRAGON ^ 



"The reason I have this terrific job," a buyer for a toy company 
began, "is that the guy before me was fired after he lost so much in 
video games. Do you think there is any way I'm going to make that 
mistake?" 

Throughout 1984, Arakawa heard variations on that theme over 
and over when he met with toy- and department-store representa- 
tives to tell them he was considering entering the home video- 
game business. They thought he was nuts. 

Arakawa marveled at the intensity of the hostility toward video 
games — even the phrase was taboo. In the horror stories about the 
industry, hyperbole was unnecessary. One of the legions of former 
Atari vice-presidents (who retreated into his father's pharmaceuti- 
cal business after the crash) said he watched millions of unsold 
game cartridges being bulldozed into a landfill. Destroyed careers, 
divorces, and a suicide were blamed on the Atari crash. "It would 



ENTER THE DRAGON 1 59 

be easier," one former toy-industry executive told Arakawa, "to 
sell Popsicles in the Arctic." 

On the other hand, there was no letup in the sales of the 
Famicom in Japan. Were Tokyo and Darien that different? 

Arakawa, Howard Lincoln, Ron Judy, and Bruce Lowry visited 
arcades, toy retailers, merchandisers, discounters, specialty stores, 
software developers, former Atari and Coleco managers and exec- 
utives, and anyone else with experience or opinions about video 
games. "We kept trying to zero in on what we shouldn't do," Lin- 
coln says. What they most often heard was that they shouldn't do 
anything at all. But there was a consensus that the "suck factor" 
was one of the biggest reasons for the industry's crash. The market 
had been glutted with terrible games. "Pac-Man" was a blast in 
arcades, but the home version "sucked." "ET," ridiculously hyped, 
"sucked." "Zombies from Pluto Stole My Girlfriend" "really 
sucked." 

Bad games such as these would never have survived in the ar- 
cades; kids would have tried them and deserted them. But there 
had been no easy way to test home games. Fancy boxes and expen- 
sive advertising campaigns made promises, and when the promises 
were unfulfilled, the customers stopped believing them. Systems 
and games went into the garbage. 

Arakawa came to realize that it didn't matter how much money 
was spent on marketing, advertising, and promotion if the games 
weren't good enough. As a Nintendo slogan later acknowledged, 
"The name of the game is the games." Arakawa also knew that he 
had, if nothing else, great games. Sigeru Miyamoto's "Super Mario 
Bros." and "The Legend of Zelda" would blow these kids away. 
The question, then, was how he could get them to understand that 
Nintendo's new system was like nothing they had ever seen. 

There was much to be done. 

Arakawa felt it was vital that the Nintendo system be distin- 
guishable from its predecessors. He decided it should be clear 
from the outset that the Nintendo system wasn't a toy. If it was 
marketed as a more sophisticated electronics product, the com- 
pany could disassociate from the Atari, Coleco, and Mattel sys- 



GAME DVER 



terns. There were other reasons to stay far away from the toy 
business. December 10 dating, which had helped devastate Nin- 
tendo when it was selling Game & Watches, was one. As a con- 
sumer-electronics company, Nintendo could take orders, deliver 
systems, and send bills that were due in thirty or sixty days. The 
marketing perspective would therefore be broadened: to include 
mass merchandisers, electronics stores, and discounters as well as 
the toy chains. 

To interest an extended base of retailers, Arakawa wanted the 
system to be more than a game machine; it should have the capa- 
bilities of a small computer. NCL engineers were given the task of 
developing peripherals, including a keyboard, a music keyboard, 
and a tape-storage device. They came up with new, high-tech, in- 
frared remote controllers and a cool Zapper gun to play shooting 
games. All these options indicated that the Nintendo machine was 
both a giant step forward from the old-wave systems and a new 
kind of system altogether. Parents would be more likely to buy it 
because it could do more for their kids (the keyboards, for exam- 
ple, promised educational and cultural value). 

The R&D teams in Kyoto modified the system while Arakawa 
had some of his people in Seattle design the housing and packag- 
ing. A young designer named Lance Barr was assigned to make a 
system that looked high-tech sleek yet accessible. The main com- 
puter board and circuitry were nearly identical to the Famicom, 
but Barr fit them inside a slimmer and handsomer box. Gray and 
squarish, it looked more like a stereo component than the red-and- 
white plastic Famicom. The remote-control unit was understated; 
it could have been featured in a Sharper Image catalogue. The 
Zapper gun might have belonged to Luke Skywalker, the key- 
boards were slender and svelte, and the joystick looked like it 
belonged in a jet fighter. The system was given a name to reflect its 
maturity: the Advanced Video System, or AVS. 

The major headache of counterfeiting also had to be addressed. 
The problem was the apparent impossibility of making an un- 
counterfeitable machine or uncopiable software. There was also a 
related problem. Ron Judy said that to avoid the "suck factor," 
Nintendo had to have a way of controlling the quality of software 
released for the AVS. Also, Judy pointed out, if the AVS could run 



ENTER THE DRAGON 1B1 

the same games that ran on the Famicom, illegal Taiwanese games 
would flood the U.S. market. "We need a security system," he said, 
and Yamauchi and Hiroshi Imanishi set the NCL engineers on the 
task of creating one. 

NCL's attempts to stop rip-offs in Japan, including the periodic 
system revisions, had been only partly effective. The licensing 
agreements also helped, but outfits that were going to counterfeit 
hardware or software didn't care about licensing agreements. Had 
NCL decided to put a security chip in the Famicom, it might not 
have lost some of the huge markets of the Pacific Rim. In addition, 
it might have been able to stop companies like Hacker Interna- 
tional from releasing nonapproved games. 

The security system the Japanese engineers devised was a com- 
plex implementation of a simple lock-and-key concept. The AVS 
wouldn't work unless a chip in the cartridges unlocked, or shook 
hands with, a chip in the AVS. The key was a kind of song the two 
chips sang to one another. If a cartridge was inserted into the 
machine that didn't know the song, the system would freeze. 

Nintendo called the invention a "security chip," but it was re- 
ferred to in the industry as a "lock-out" chip; it stopped more than 
counterfeiters because no one could manufacture their own games 
for the AVS without Nintendo's approval. Only Nintendo had ac- 
cess to the technology, including the specific computer code at its 
heart. Lincoln had copyright and patent applications filed for the 
security system. 

While the security system was being developed, Arakawa asked 
Don James to recommend the best NCL games for the AVS. 
James and Howard Phillips played hundreds of games and gave 
Arakawa a list of their favorites. Arakawa chose forty and sent 
instructions to Japan to prepare English-language versions. 

The AVS was to debut at the January 1984 Consumer Electron- 
ics Show. Don James designed a booth for the occasion — more 
substantial than the one in which Nintendo had shown Game & 
Watch. Nervously, James, Arakawa, Lincoln, and Phillips traveled 
to Las Vegas with AVS demos and boxes full of brochures. "The 
evolution of a species is now complete," the brochure announced. 
On the cover was a picture of three televisions. Playing on one was 
"Pong," a few dreary white lines on a black screen. Playing on 



1 62 GAME OVER 

another was a color tennis game, roughly animated blue-and- 
yellow stick figures on either side of a net. The third screen was 
veiled in a red cloth. Inside the brochure the system, with its nu- 
merous peripherals, was introduced. "Ninety percent of the Japa- 
nese market won't play anything else. Welcome to the future of 
American home video entertainment." 

The show opened and Arakawa, James, and Lincoln excitedly 
manned the booth while Howard Phillips demonstrated games. 

The AVS looked impressive, the Nintendo representatives were 
told. But almost all those who stopped by at the booth shook their 
heads when asked if they would consider placing an order. "The 
memories of Atari were too recent," Lincoln says. 

Although Nintendo tried again at the industry's June show, it 
was clear that Arakawa had misjudged his ability to overcome 
skepticism. He hadn't been able to create the new category that 
combined computer power and entertainment. No one cared 
about the remote control, and they hated the keyboard — a turnoff 
to kids, industry executives believed (parents were irrelevant). The 
AVS had all the problems not only of the video-game business but 
of computers too. No one would touch it. 

Back to the drawing board. Instead of attempting to improve on 
the video-game systems of the past, Arakawa decided that he 
should figure out a completely new way to sell it. He scrapped the 
computer peripherals. Kids wanted fun, not BASIC programming 
languages and cassette-tape storage drives. They tossed out the 
keyboard, the piano keyboard, and the remote-control unit as well 
as the name. R&D 1 was put in charge of a new peripheral that 
would make the system something other than a video-game ma- 
chine. 

In Japan, Gunpei Yokoi's team came up with ROB, or Robotic 
Operating Buddy. He was one foot high, gray, legless, and he really 
didn't do much. He was controlled by the video-game system. The 
flashing of the television screen activated a chip in ROB's head 
that caused him to move. Players controlled him at the same time 
they controlled action on the screen. In games designed for ROB, 
such as "Gyromite" and "Stack-Up," players would cause the 
robot to pick up chips from one stack and drop them onto a pad 
that triggered a door in an on-screen game. More than anything, 



ENTER THE DRAGON 1B3 

ROB looked cool. He would be used to sell the video-game ma- 
chine. 

James and Barr worked on a new design for the system— again 
high-tech gray, but boxier. Game cartridges slid into the front 
instead of the top, and revised controllers were attached by plastic 
cords. It wasn't toylike— it still looked like a consumer electronics 
product — but it was simpler than AVS. Nintendo de-emphasized 
the box in favor of ROB and the Zapper gun. 

At the June 1985 Consumer Electronics Show, Nintendo 
debuted what Arakawa had renamed the Nintendo Entertainment 
System, or the NES. The operative word was entertainment. Ev- 
erything Nintendo would do to sell the machine would emphasize 
this. 

The reaction at the new show was somewhat better. Buyers liked 
ROB. Still, they were reluctant to place orders. 

Arakawa stubbornly ignored the reaction. He said that the peo- 
ple in the industry were jaded. Kids would love it, he believed. To 
prove it, he commissioned focus-group studies in New Jersey. 
From behind a one-way mirror, he watched a random sampling of 
young boys play the NES and heard them say how much they hated 
it. lypical was the comment of an eight-year-old: "This is shit!" 

Depressed, Arakawa wondered if he should give up, and in a 
conversation with Hiroshi Yamauchi, he said as much. Yamauchi 
denounced such fatalism. The market in America wasn't that dif- 
ferent from the Japanese market, he said. "But the tests 
show . . ." Yamauchi interrupted him. "Ignore them," he said. 
"Tiy to sell the system in one American city. Then, if it fails, it fails. 
But we must get it into the hands of the customer. That is the only 
test that matters." 

Arakawa, Ron Judy, Howard Lincoln, and Yamauchi considered 
the location of the test. Judy thought they should start a limited 
test in a small town, but Yamauchi shook his head. "What is the 
most difficult town to start in?" he asked. 

The answer was obvious: New York City. 

Yamauchi asked why. 

Besides the obvious hurdles of New York's competitive market, 
it also had been hit the hardest by the crash of the industry in 1983. 
What's more, much of the excess inventories had been dumped 



164 GAME OVER 



there — not to mention that New York had the most savvy and 
cynical buyers in the country. 

Yamauchi said that New York was where they should go. He 
gave Arakawa a budget of $50 million. 

In late summer 1985, Arakawa leased a warehouse in Hacken- 
sack, New Jersey, bordered by a railroad and a cemetery. There 
were no windows. The only light in the cavernous room was from a 
few dangling naked bulbs, and it was spooky and depressing. 

Arakawa brought about thirty NOA employees East. Ron Judy 
and Bruce Lowry were the first to arrive. Then a deputation of 
twelve more — they called themselves the SWAT team — flew out 
and landed in Newark in the middle of a hurricane. 

At the terminal, twelve rented cars awaited the team. They trav- 
eled in a shaky caravan to the warehouse, which was flooded. As 
the group surveyed the dreary headquarters, Arakawa cheered 
them on. "If we can just get players to see it, it will be really big, " he 
said. "I know we can do it. It's a big job, but everything worthwhile 
is difficult. We just have to get it to the players. If we do, it will be 
really, really big." 

He got through to them. An ebullient chorus came back: "Yeah! 
It will be big." 

Arakawa said, "It will be really big." 

They echoed, "Really, really big." 

Other employees arrived over the next month. From Japan there 
was Shigeru Ota, who did the books, and a technician, Masahiro 
Ishizuka. Cindy Wilson was an executive assistant. Others included 
Rob Thompson, who became the service manager. Howard Phil- 
lips, who had become shipping-warehouse manager of coin- 
operated games, was flown in. "We felt like the elite point team," 
Phillips says. 

Judy, Ota, and Ishizuka lived in a New Jersey house Nintendo 
had rented. Their furniture consisted of wooden boxes and suit- 
cases that they never entirely unpacked. The house doubled as a 
place to store spare parts, and it also became Nintendo's after-sale 
service center. Other employees lived in rented condos and apart- 
ments, two to five to a place, all furnished with junk-sale furniture 
and mattresses on the floor. Rob Thompson, Howard Phillips, and 



ENTER THE DRAGON 1B5 

Don James lived together in a townhouse in Fort Lee. Howard 
Phillips woke up every morning at six and made his way to the 
shower, where he sang opera. Thompson and James threatened to 
murder him. 

The various groups carpooled to the warehouse in the morning 
and worked all day, breaking in the evening for dinner at a neigh- 
borhood coffee shop. Then they returned to work and stayed late 
into the night. 

Howard Lincoln sent posters of Seattle for the SWAT team to 
put up in the warehouse so it wouldn't be so dreary. He and 
Arakawa, shuttling between Seattle and New York, made calls on 
retailers, as did Bruce Lowry. Judy met with advertising agencies 
and planned a promotion campaign. Other SWAT-team members 
manned the telephones, trying to convince buyers for large and 
small stores to see them. They pressed shopping-mall managers to 
allow them to demonstrate the NES. Arakawa used some of his 
budget to sign up professional athletes for the demonstrations. 
Mall managers were far more open to the idea of having famous 
ball players come by than businesspeople representing an un- 
known company with a strange Japanese name. 

In October the push began in earnest. In pairs, the SWAT team 
hit the pavements, visiting department stores and large and small 
toy and electronics retailers. They worked to convince companies 
such as Toys "R" Us, Sears, Circuit City, and Macy's. Although 
Charles Lazarus, founding chairman of Toys "R" Us, and a very 
few others were receptive, most people could not pronounce Nin- 
tendo and were not interested in learning how. 

Arakawa realized that the only way around the retailers' reluc- 
tance was to make it a risk-free proposition. Yamauchi, however, 
had trouble with this idea. He couldn't understand why he should 
offer a complete money back guarantee; Nintendo had never had 
to operate from a position of weakness. Arakawa argued that the 
ultimate sign of strength is to have so much confidence in your 
product that you would almost pay stores to carry it. Yamauchi 
didn't need to tell him how risky the tactic was. 

Nintendo, Arakawa announced, would stock the stores and set 
up displays and windows. Nobody had to pay for anything for 
ninety days. After that period, stores would pay Nintendo for what 



1 BB GAME OVER 

they had sold and could return the rest. It was an offer store buyers 
couldn't refuse, although it was still greeted with skepticism. Then, 
one by one, companies agreed. "It's your funeral," one buyer said. 

Many of the Nintendo team worked eighteen-hour days, seven 
days a week for the three months that preceded Christmas 1985. 
Ron Judy would load up a couple of rented vans with Don James's 
displays and drive to Long Island or Westchester County or some 
other New York suburb. In malls the team set up colorful booths 
with twelve or so monitors, each one attached to an NES. They 
arrived in the middle of the night and worked until four o'clock in 
the morning setting up the displays, then drove home to sleep for a 
few hours. The next day they headed back to the malls, where they 
stood next to Mets stars who were signing autographs and tried to 
get passersby to listen to their spiel. Mookie Wilson and Ron Dar- 
ling even played NES baseball, projected on a large-screen TV. 

"The trick was to get people to come over," Arakawa says. "If 
we could get it in the hands of the consumers, they would be 
convinced." 

Howard Phillips turned out to be one of the team's best spokes- 
men; he had a knack for communicating his own enthusiasm, punc- 
tuating his sentences with words like cool and neat. He grabbed 
kids, old ladies — anyone — and before his victims realized what had 
hit them, he had them playing. 

At one mall, the Nintendo team spent all night setting up its 
booth to be ready. Just as the crowds poured in, the mall's director 
came over and forbade them to turn on the games; "They attract 
the wrong sort of crowd," she said. She had only wanted to meet 
the baseball stars. 

Days such as this made the Nintendo employees wonder what 
they were doing. "We're overworked, underpaid, we don't see our 
families, nobody wants what we're selling — what's the point?" they 
whined. Ron Judy would buy them all dinner and reassure them. 
"Just wait," he said. Arakawa would pat them on the back and 
cajole them: "It will be worthwhile. It will be . . ." They finished 
his sentence without enthusiasm — "really big. We know." 

It was an uphill climb. Even with the guarantees, fancy in-store 
displays, and the promise of a $5 million advertising campaign, it 
took three sales calls to win over most stores. A buyer would finally 



ENTER THE DRAGON 1 B "7 



be convinced, but then a merchandising manager would say a flat 
"No way." When he was convinced, a vice-president would say no. 
But the Nintendo team was persistent, and more stores agreed. 

The advertising campaign and press relations were run by Gail 
Tilden, under the supervision of Ron Judy. Tilden had come on in 
1983. She was a brunette with long hair, bangs down to her eye- 
brows, and gray-blue eyes. She was a combination of Annie Hall 
looks and self-confidence; she looked down, stumbled over words, 
and charmed almost everyone she met. 

After a year at Britannia Sportswear, Tilden worked for a small 
Seattle advertising agency. When a former boss of hers left Nin- 
tendo to have a baby, she recommended Gail to replace her. 
Within a year she was Nintendo's ad manager. With input from 
Judy and Lowry, she hired an ad agency in early August 1985. 

Although the Nintendo executives didn't know much about ad- 
vertising a video-game system, they had learned from the com- 
pany's botched effort to make commercials for Game & Watch to 
trust professionals: no employees were in ads. 

Tilden instructed the agency in the rules of NES advertising, all 
designed to disassociate Nintendo from Atari. No-no's included 
the use of the term video game; this was an entertainment system. 
Software was never to be described as game cartridges, another 
word associated with Atari. At Nintendo they were game packs. 
The NES itself wasn't a console but a control deck. 

The ads the agency came up with emphasized the variety of 
games and featured ROB and the Zapper. It wasn't easy to adver- 
tise video games on television, because watching kids play the 
games was about as exciting as watching someone read. The excite- 
ment was internal. They came up with ads that tried to convey the 
feeling of video games: energy, color, danger, irreverence. In the 
commercials, houses blasted off into space and kids explored a 
spaceship where the control panels were game screens. The voice- 
over asked: "Will it be you? Will your family be the first to witness 
the birth of the incredible new Nintendo Entertainment System?" 
A light of the sort in Close Encounters of the Third Kind showed. 
"Now," the announcer exulted, "you're playing with power." 

As promised, Arakawa began to blitz the New York area with 
television advertising. Meanwhile, Tilden met with members of the 



1 BB GAME OVER 



trade press, the reporters who covered the toy and consumer- 
electronics businesses. They were skeptical, even as they acknowl- 
edged that Nintendo's product had better graphics and games than 
the systems of the past; they simply didn't believe the company 
would be able to reignite consumer interest. Tilden tried to con- 
vince them that video games were an entertainment category, just 
like VCRs and stereos, but the reporters shook their heads; they 
had heard it all before. She explained the quality-control measures 
Nintendo had taken in order to prevent the market from becoming 
saturated with bad games that had plagued the industry in the past, 
but the journalists had stopped listening. 

A second hurricane that swept through Hackensack one morn- 
ing was a fitting metaphor. Through the warehouse door, the ex- 
hausted Nintendo staff watched the rain falling horizontally, from 
left to right. It became sunny for a while as the eye of the storm 
went over them. Then the rain poured down again, this time from 
right to left. Don James took photos. 

Still, the extraordinary efforts began to pay off. A growing list of 
stores placed orders. But there was no time for the Nintendo staff- 
ers to congratulate themselves; success meant more work. Phillips, 
who managed the warehouse, received containers filled with sys- 
tems from Japan and shipped them out to retailers. James had a 
team building window displays he designed for stores that had 
agreed to feature the NES for the holiday season. Everyone helped 
build them. One night, Arakawa and Lincoln raced Don James and 
Howard Phillips to see whose team could build more displays. 

There was never a respite from the pressure, although there 
were some gratifying moments. When Howard Lincoln walked 
across Fifty-ninth Street in Manhattan and reached the FAO 
Schwartz store, he was stopped in his tracks when he saw the 
window display he and a few others had spent the previous night 
assembling. Midtown was crazy with holiday shoppers, and Lincoln 
got so excited he called Hackensack and insisted that the staff join 
him. Soon the members of the SWAT team were crowded to- 
gether, standing in front of the toy store, staring at their window as 
if it were a barn they had just raised. 

Howard Phillips, on the other hand, had a rather unexhilarating 
experience late one night while setting up a display at a Toys "R" 



ENTER THE DRAGON 169 

Us in New Jersey. A security guard on the graveyard shift came 
over and struck up a conversation. When he saw the video-game 
system, he asked, "Are you from Atari?" 

Phillips explained that he was from Nintendo with a new and 
better system. 

The guard said, "You're working for the Japs? I hope you fall 
flat on your ass." 

They worked until the day before Christmas. Between 500 and 
600 stores were selling the NES. The team members were spent. A 
group of them summoned the energy to drag themselves to New- 
ark Airport to fly back to Seattle to spend Christmas with their 
families, but their flight was canceled because Seattle was fogged 
in. Most of the SWAT team spent a lonely Christmas in New 
Jersey. 

The advertising and mall tours succeeded in building interest in 
the NES, and stores were racking up sales. The New York test 
wasn't quite as successful as Nintendo had hoped, but half of the 
100,000 systems shipped from Japan were sold. Most important, 
retailers had decided that Nintendo had a viable product. It was 
enough to justify going forward. 

Los Angeles was next. It was a tougher sell there because of the 
time of the year. They hit stores in L.A. in February, a bad month 
for retailers, particularly for toys. Still, enough systems were sold 
to encourage Arakawa. The L.A. sales were slow but steady, and 
retailers were enthusiastic for the most part. The team continued 
— to Chicago, San Francisco, and several Texas cities before going 
national. By the end of the first year, a million systems had been 
sold in America. 

It was still slow going. Stores remained reluctant to commit 
much to video games, and most people in the industry assumed 
that Nintendo's limited success was a temporary aberration. In the 
second year, however, the company sold another 3 million systems. 

When Arakawa had ventured into the food business with Chuck 
E. Cheese and the other restaurants, he got advice from Peter 
Main, his old friend from Vancouver, who had a wealth of experi- 
ence in marketing and restaurant management. Nintendo's restau- 
rants were making a profit, and Arakawa tried to convince Main to 



1 70 GAME OVER 

resign from his vice-presidency at General Foods and join Nin- 
tendo. He wanted Main to oversee the restaurants and help 
orchestrate what Main would later call Nintendo's "Invasion of 
Normandy," the NES launch. 

Main, balding but with a trace of thinning gold hair on the sides 
of his head, wore big round glasses with thick root-beer-colored 
frames. Behind the glasses were dark eyes, jovial and frank. He 
worked in an office strewn with baseballs, a Hula-Hoop, and an 
electric train set. 

A Canadian, Main had worked for years for Colgate-Palmolive. 
He headed their new-products group in Canada. He had spent 
years coming up with ways to convince people to buy Colgate 
toothpaste and various other products. In those businesses, a frac- 
tion of market share meant millions of dollars. "You had to be a 
street fighter," Main says. "You had to beat them on the curbs." 

Main moved on to General Foods in Canada and managed its 
restaurants, including Kentucky Fried Chickens, steak houses, 
Burger Chefs, and White Spots. He also went into business for 
himself before returning to General Foods at about the time "this 
neat young Japanese couple" bought the house across the street. 
"It looked different from the other houses," Main says. "The shoes 
were outside the front door." Soon he got to know the Arakawas — 
"very, very warm people, even though their verbal skills were not 
considerable at the time." 

In 1980, Arakawa told the Mains that he was quitting his job and 
going to work for his father-in-law in America to set up in New 
Jersey something called Nintendo of America. Main thought it was 
a pinball factory. 

The Mains heard from the Arakawas through notes and Christ- 
mas cards and saw Minoru when he dropped by to check in on the 
property he still owned. Main later heard from Arakawa when he 
and Yoko had moved to Seattle after Nintendo returned West. In 
early 1982 Main helped Arakawa get into the restaurant business. 
Five years later, when Nintendo was completing its market tests for 
the NES, Arakawa asked Main to come work at Nintendo. Ron 
Judy had been in charge of marketing, but he was going off to 
Europe to promote the NES there. 

Main knew nothing about the video-game business, so he stud- 



ENTER THE DRAGON 171 

ied all the documentation he could find about the Atari crash. 
"Nintendo," he concluded, "had a better mousetrap and a commit- 
ment to do this thing right." He came on as vice-president of 
marketing, with responsibilities that included advertising, promo- 
tion, distribution, and merchandising. 

Main first sought to improve Nintendo's relationship with the 
retail community. He also began an assault on Wall Street, meeting 
key analysts who follow the toy and electronics businesses. With 
the success of the tests behind them, sales could have been ex- 
pected to at least slog along, but there was no guarantee of bigger 
numbers or market longevity. Large discount chains and depart- 
ment stores were still not convinced. Space in their stores was at a 
premium; to minimize risk, they put Nintendo in only a few stores 
and carried just a handful of games. The toy stores were coming 
aboard, but the retailing base was still tenuous. 

A forceful salesman, Main met with analysts and gave them "a 
hot tip." Analysts were always on the lookout for the next big 
thing. They were also looking for companies with strong balance 
sheets that might employ their organizations when it came time to 
offer stock. Nothing was known about Nintendo when Main sat 
down with these people, one at a time, to pitch them. He presented 
them with background on NCL, its history, and its financial status 
— a balance sheet with no debt. This caught their attention, and so 
did the numbers: Nintendo had a lock on 90 percent of the thriving 
industry in Japan. 

The analysts checked with their counterparts in Tokyo, and after 
corroborating the information, talked to retailers. Having the top 
analysts asking about Nintendo gave the company a credibility it 
had never had in the United States. When analysts heard that 
other analysts were talking about Nintendo, it confirmed that they 
were on to something. It was a chain reaction. When buyers at 
Circuit City, Babbages, or the other electronics retailers told ana- 
lysts that they weren't carrying Nintendo — that the electronic- 
game business was not in video games but in computer software — 
they heard back, "Are you crazy? These guys are already selling 
more of one title than you sell of all computer-game titles put 
together!" The buyers checked with other analysts and asked 
about the company. When Main went to Sears, a vice-president 



1 "72 GAME OVER 



told him, "Funny you should mention Nintendo. I was just at an 
investment-analysis meeting and there were people asking me 
what we were doing about Nintendo." Sears was one of the 
toughest sells since it had been burned more than other companies 
by a huge investment in Atari. 

The sleight-of-hand worked. Sears signed up, and Circuit City 
and Babbages (with its two hundred software stores) did too. Wall 
Street was inundated with stories about Nintendo. Kmart and Wal- 
Mart, conservative and cautious, expanded their commitment. To 
compete, the toy companies began buying more Nintendo prod- 
ucts. "It became a self-fulfilling prophecy that something would 
happen," Main says. 

In 1988, 7 million more NES units were sold, along with 33 
million game cartridges. Two Nintendo games — "The Legend of 
Zelda" and "Mike Tyson's Punch-Out!" — sold 2 million apiece just 
as "Super Mario Bros. 2" was released (the original "Super Mario 
Bros." was included with the NES). 

By 1989, there would be an NES unit in one out of every four 
American homes. By 1990, one third of American homes would 
have one — more than 30 million of them. By 1992, the video-game 
industry would be thriving again — it passed $5 billion in retail sales 
that year — and, for all practical purposes, it had all been Nin- 
tendo's doing. 

If Nintendo had been an American company playing by the rules 
such companies follow, it would have given up long before there 
was any indication of success — that is, after Arakawa's original 
market surveys, when the AVS failed, or when there was resistance 
at the first trade shows. Many American companies are so wedded 
to market research that the devastating results of focus groups 
have signaled death knells. Had Nintendo been American, the 
company would probably have retreated when retailers in New 
York declined to place orders, or when it took more than a year for 
big sales numbers to appear. But commitment to an idea and pure 
tenacity are inherent in Japanese business philosophy — and cer- 
tainly to Japanese business successes. 

Arakawa's perseverance was vital — "I learned to set a goal and 



ENTER THE DRAGON 173 

to do what is necessary to reach it"— but even more important was 
Yamauchi's commitment to back him. The money poured forth — 
more than the original $50 million Yamauchi had committed. He 
could afford to spend vast sums on the new product even if it 
meant fiscal quarter after fiscal quarter of weak profits or even 
losses. A CEO of a public company in America with stockholders 
to answer to four times a year would probably have withdrawn. 
Quarterly profit-and-loss statements do not tell the long-term story 
of a company, however. Heads of Japanese companies answer to 
investors, but they are not under pressure to deliver high dividends 
or dramatic short-term growth. The structure allows company 
heads to work toward long-term growth; they are not forced to 
abandon a strategy today because it didn't pay off yesterday. 

Nintendo's success was proof of the superiority of a system that 
allows long-term commitment. This feature of Japanese business 
was one reason why Japanese companies ended up with almost 100 
percent of the video-game hardware business, just as they had 
most of the television and VCR business and were on their way to 
having most of the business in products from flat-screen displays to 
certain high-capacity memory chips — all of them technologies pio- 
neered in America. 

As Arakawa succeeded in his conquest of the American market, 
he would be attacked by competitors and American politicians. 
Nintendo prevailed, they would charge, because of illegal prac- 
tices, from price fixing to un-American monopolistic control to 
intimidation of retailers. But the companies (and the economy) 
that suffered because of Nintendo's success would have been bet- 
ter served if they had struck out against the American system 
which allowed Nintendo to stroll into a market that had been all 
but destroyed. 

Still, Japan-bashers were correct in one sense. If the playing 
fields in Japan and America had been equal, Nintendo might never 
have destroyed the American competition. Even in its heyday, 
Atari never had much success in the Japanese consumer market. 
The Atari 2600 sold for about $120 in America, but by the time it 
reached Japanese consumers, after traveling through the trade 
barriers of middlemen and the many-tiered distribution system, it 
cost the equivalent of $380. At that price, few sold. Other Ameri- 



GAME OVER 



can companies wrote Japan off, settling for small profits by licens- 
ing video-game systems to Japanese companies. Magnavox, for 
one, sold the rights to its Odyssey system to Nintendo. On the 
other hand, if the 2600 had been priced competitively in Japan, 
Atari might have become the standard there, as it had in America. 
Nintendo might not have been able to undersell Atari by so much, 
and so might never have tried to compete. The Famicom and NES 
might never have been developed. 

After the Atari crash in America, almost nothing happened in 
the home video-game industry until Minoru Arakawa came along. 
Atari was in such bad shape (and had such a bad name) that its 
follow-ups to the 2600 sold a trivial number, and there remained 
no other American competition to speak of. The personal- 
computer companies could have come in at this point, but they 
weren't interested in that market. As a result of this miscalcula- 
tion, Nintendo was soon making more money than Apple. 

Arakawa also endured because he didn't care what anyone 
thought. Analysts rolled their eyes, but he refused to be dependent 
on the American industry's narrow view of the market. He kept 
slugging away because he believed, correctly, that kids in America 
were very much like kids in Japan. There were minor differences — 
gun games were popular in the United States, but not in Japan, 
while role-playing games did better in Japan — but the kids were 
similar enough to form a market that would buy more than 75 
million Nintendo systems in the two countries by 1992. 

The grumbling heard throughout the American industry could 
not diminish the fact that Nintendo did certain things better than 
companies in any industry. The company's products were good and 
the backing from its Japanese parent company was crucial, but 
Nintendo still would never have gained its enormous sales without 
phenomenal marketing — "the kind that America had never seen 
before," according to a competitor. 

Peter Main and Arakawa led a multiphased assault that was 
meticulously planned and flawlessly carried out. Nothing was left 
to chance. Through the late 1980s, the company launched ad cam- 
paigns and the first organized merchandising program with inter- 
active displays in stores throughout the United States. Anyone 
passing by a Nintendo display could stop and try it. TV commer- 



ENTER THE DRAGON 



cials had piqued kids' curiosity, and soon anyone shopping with 
their children was dragged to Nintendo displays in stores. Once 
kids tried "Super Mario," Nintendo was put on Christmas lists. 
Peter Main wanted an even greater in-store presence. To get it he 
decided to bring in a professional merchandiser, John Sakaley, 
who knew the toy business inside out. 

Sakaley had begun his career as a carpet buyer, then changed to 
become a toy buyer. He ended up working for Kenner, under 
Bernie Loomis, the company's well-known and respected presi- 
dent. Under Loomis, Sakaley formed Kenner's first merchandising 
department and introduced a series of innovations, including an 
approach begun by Mattel: stores within stores devoted to a single 
product (there was a Star Wars store in toy departments, with 
action figures, space vehicles, posters, and the like). 

Eventually Sakaley left Kenner to become the group director of 
the retail sales force for the toy division at General Mills. Then 
Bruce Donaldson, the vice-president of sales for NOA, hired him. 

When Sakaley was hired, he focused on developing a merchan- 
dising force that headed into the trenches and called on stores to 
make certain that the NES was prominently displayed. Eventually 
Toys "R" Us would feature full rows of Nintendo merchandise, 
and Macy's would incorporate NOA's ambitious store- 
within-a-store, The World of Nintendo. 

To get stores to invest in huge Nintendo displays, Sakaley initi- 
ated the "merchandise-accrual fund." For each piece of Nintendo 
hardware or software purchased, the retailer was credited with a 
specific amount in a fund — a quarter for an NES system, a dime 
for a game — that was used to purchase displays Sakaley's staff 
created. Retailers' credits toward their merchandising-accrual 
funds doubled when they agreed to have a World of Nintendo. Of 
course this benefited Nintendo at least as much as the stores. 

Eventually, 10,000 retail outlets had Worlds of Nintendo, where 
they showcased a growing cornucopia of products, all of which 
carried the Nintendo Seal of Quality, an idea Ron Judy had come 
up with. 

Nintendo displays were elaborate. At some locations, laser-light 
beams shot through the air. Silver-metallic and fluorescent-yellow 
pipes and tubes snaked over and around girders. It was as if you 



17B GAME OVER 



were inside a Nintendo game. The displays won awards from the 
Point of Purchase Advertising Institute (POPAI) several years in a 
row. 

This mammoth effort resulted in strong NES sales, but Arakawa 
saw that they were still held back by an inadequate distribution 
system. Some chains had signed on but still ordered cautiously. 
Others remained unconvinced. To get the holdouts, it seemed ben- 
eficial to hook up with a distribution network that already had a 
presence inside the stores. 

Don Kingsborough was a legend in the toy business. He had 
been with Atari before founding Worlds of Wonder (WOW) to sell 
Teddy Ruxpin, a mechanical bear that told stories. Teddy's mouth 
moved when prerecorded tapes played on his built-in cassette 
player. 

Teddy Ruxpin was the most popular toy around for a couple of 
Christmases; retailers wanted all they could get. To service them, 
Kingsborough developed a large, efficient distribution network. 

Arakawa met with Kingsborough and made a deal that benefited 
both Worlds of Wonder and Nintendo. Joining forces with Kings- 
borough's group gave Nintendo immediate marketplace muscle. 
Teddy Ruxpin had brought in $93 million in revenues in 1985, its 
first year, and more than $300 million by the end of the next year. 
Overnight WOW was worth $550 million. By convincing Kingsbor- 
ough to distribute Nintendo beginning in late 1986, Arakawa got 
presence and credibility. WOW had relationships with most toy, 
department, and discount stores. For its part, the Worlds of Won- 
der network gained a large new business servicing the Nintendo 
account. Revenues from the deal helped Kingsborough to expand. 

Although the WOW operation did increase Nintendo's presence 
in the retailing world, Sakaley came to feel that Nintendo still 
wasn't getting enough "bang for the buck." He felt Nintendo could 
do a better job with reps committed solely to Nintendo, not to 
Teddy Ruxpin as well. 

Sakaley discussed this with Arakawa, who gave him the go- 
ahead to start his own merchandising force. Sakaley had already 
started to organize it when, in the fall of 1987, Worlds of Wonder 
began to fall apart. The Teddy Ruxpin fad had run its course, and 



ENTER TH E DRAGON 177 



the company's costs were out of control. WOW had an assumed 
debt of $200 million and a tremendous inventory. "Worlds of Won- 
der has been in a world all its own," a toy-industry analyst said. 
Although a private investment group took over the company, Nin- 
tendo was told on a Friday in October that WOW would not be 
able to continue with its field-merchandising service. 

Arakawa convinced Kingsborough not to lay off his field repre- 
sentatives for seventy-two hours. During that time he had Sakaley 
explore Nintendo's options. Sakaley and an assistant worked 
through the weekend, and on Sunday night he called Peter Main. 
In the morning, when the two men sat down with Arakawa, 
Sakaley told him that Nintendo should take over the WOW orga- 
nization. After a call to Kingsborough, Arakawa had Sakaley hire 
the WOW reps as they were fired from WOW. 

Sakaley had an instant force of 100 people and he hired fifty 
more. The new force carried cameras and photographed the Nin- 
tendo displays. Sakaley was able to send someone out almost im- 
mediately if a major store wasn't doing its part. The reps were also 
equipped with Panasonic hand-held computers with telephone 
modems that could relay sales information back to the main office. 
"Back in the Colgate days, it used to take two months to get a 
report after the fact to find out the mistakes you made— which you 
were compounding and which were leading you down the wrong 
road," Main says. "We were getting it daily." 

Japanese companies in the automobile industry used efficient 
just-in-time inventory management systems. Essentially this meant 
that companies bought parts they needed only when they needed 
them. The merchandising feedback loop allowed Nintendo to insti- 
gate a kind of just-in-time inventory policy so that it ordered only 
what it needed as it needed it from NCL. Likewise, NCL could 
thus avoid over- or underproduction. Neither NCL nor NOA had 
to tie up money in inventory. 

Main's and Arakawa's web sought not only to ensnare customers 
but to keep them. Nintendo encouraged customers to send in war- 
ranty cards with contests to win game cartridges. U.S. contest laws 
soon made it too complicated, so a new incentive was developed: 



178 GAME OVER 



anyone who sent in a warranty card became a member of the Fun 
Club, whose members got a four-, eight- and eventually a thirty- 
two-page newsletter. Seven hundred copies of the first issue were 
sent out free of charge, but the number grew as the data bank of 
names got longer. 

From the success of the magazines in Japan, Nintendo knew that 
game tips were an incredibly valuable asset. The bimonthly news- 
letter's crossword puzzles and jokes were fine, but game secrets 
were the most valued. The Fun Club drew kids in by offering tips 
for the more complicated games, especially "The Legend of 
Zelda," which had all kinds of hidden rooms, secret keys, and 
passageways. In the newsletter a secret code was revealed that led 
players of "Mike Tyson's Punch-Out!" to the last level— a bout 
with the champ. Without the code, it was extremely difficult to 
reach Tyson. 

The Nintendo frenzy had now begun in earnest. Kids were com- 
peting with one another to finish games. When Nintendo's Red- 
mond switchboard received telephone calls from players who 
wanted tips, they too were enrolled in the Fun Club. 

The mailing list grew. By early 1988, there were over 1 million 
Fun Club members, and this led to Arakawa's decision to start 
Nintendo Power magazine. In Japan, Nintendo had allowed other 
companies to make fortunes from magazines devoted to the 
Famicom. In America, with its long list of potential subscribers, 
Nintendo would keep the money and the control itself. 

Unilaterally Arakawa decided that the magazine would take no 
advertising. His colleagues told him he was crazy — he was turning 
his back on a potential gold mine. With that subscription base, 
Nintendo licensees and companies with products geared for kids 
would have paid top dollar. 

Arakawa, however, was emphatic, insisting that the magazine 
would be purely editorial. Companies would not be able to adver- 
tise bad games, as they had in the Fun Club. Of course the "edito- 
rial" content of Nintendo Power was really one long Nintendo 
advertisement— stories about game characters, lists of kids' high 
scores, and loads of maps and charts, as well as lots of game tips. 

The company brought in a firm specializing in direct-response 



ENTER THE DRAGON 179 



research to decide how to market the magazine, but after paying 
for a survey and a lengthy computer printout of advice, Arakawa 
threw the data away. "All the kids really have to do is feel the 
magazine, look at it, touch it, and understand it," he said, "so what 
I want to do is mail the magazine free to the people whose names 
we have. Then they will buy it." When he was told that this would 
cost $10 million, he was undeterred. 

Gail Tilden had recently left the company to have a baby, but 
Arakawa wanted her back to run the magazine. Yoko said, "There 
was so much male power there that he needed Gail to diffuse it." 
Arakawa, who found Tilden talented, perceptive, and dedicated, 
called and convinced her to come back to work, although her baby 
was just a few weeks old. She prepared the first issue in January 
1989, and it was sent out to all 5 million names on the data base. 
There was something bordering on the insidious about Nintendo 
Power. Kids paid $15 for twelve monthly issues, which covered 
most of the costs of the magazine. The other costs, including mail- 
ing charges, were paid through the marketing budget. From the 
original mailing, 1.5 million people sent in $15 to subscribe. It was 
an audience that experts in the magazine business had almost writ- 
ten off: they didn't read and they had a million better things to do 
with $15. Nonetheless, Nintendo Power became the largest-circula- 
tion magazine for kids in America by the end of its first year. 

Power had what Peter Main called an "ability to pre-sell prod- 
uct." It was as if Universal Studios owned Premiere magazine and 
other print media devoted to movies. Universal could then decide, 
well in advance, to trumpet a particular coming movie, building 
anticipation. As the movie neared completion, it could make 
grander and grander announcements. Just as the film was to hit the 
theaters, it could announce that it was the most incredible movie 
ever made, and that anyone who didn't see it immediately was 
missing the event of the season. The publications would then tell 
readers how much everyone loved the movie and push any hold- 
outs to see it, all the while creating enthusiasm for the next Univer- 
sal movie. 

Power meant that Nintendo didn't have to waste money develop- 
ing hundreds of games. It could develop a select few each year and 



1BD GAME OVER 



be all but guaranteed that the games would sell at least a set 
minimum amount. Any advertising beyond the magazine was 
gravy, since Power guaranteed that Nintendo was in touch with 
millions of its most dedicated customers, enough people to create 
word-of-mouth demand for a game. 

Editor Tilden assembled materials for each issue with the help 
of Howard Phillips, the most enthusiastic in-house player, a con- 
tributing editor, and a character in a regular comic strip. Planning 
a new issue, the two went through games that were coming out to 
determine how much and what kind of coverage they merited. 
There was no pretense of editorial independence; Arakawa, Main, 
and Lincoln approved the selections. The best games (or the ones 
Nintendo wanted most to sell) were covered in spread after glossy 
spread of maps, galleries of characters, and player tips. 

"People sometimes just take kids for granted or act like they're 
really dumb," Tilden says. Nintendo did its best to speak to kids as 
peers. The voice they devised was perfect. The prose was a cross 
between the dialogue in Wayne's World and a Pee-wee Herman 
routine. Nintendo Power, in 1990, was scripture for up to 6 million 
readers a month. "Parents who complain that their kids don't read 
should pay attention— kids pore over every word of Nintendo 
Power" according to Howard Phillips. 

Tilden worked with a Japanese publishing company that de- 
signed and printed the magazine. Editors from Japan came to 
Seattle to discuss each issue. Thereafter the design teams put to- 
gether game maps and layouts. Young writers hired by Tilden, 
many from within the company, wrote enthusiastic descriptions of 
the games and provided tips that often came directly from the 
game designers. 

The magazine published Polaroid snapshots of the screens of 
kids' televisions to prove their outrageously high game scores. 
There were comics based on games, and a celebrity corner where 
kids learned that, for instance, Jay Leno loved to play "Contra." 

Eventually twelve issues a year weren't enough to meet the insa- 
tiable need for insider knowledge, so additional quarterly Nintendo 
Player's Guide books — entire magazines devoted to a single game 
—were released. Some were given away as premiums to encourage 



ENTER THE DRAGON 



kids to renew their subscriptions. "We have found that more and 
better information whets players' appetites for more games and 
accessories," Peter Main says. "Hungry consumers make happy 
retailers." 

There was an unprecedented number of hungry consumers. Nin- 
tendomania was sweeping the United States. NOA's switchboard 
operators were deluged with calls from kids. They wanted more 
information than they could find in Nintendo Power magazine, 
things like how to set up their NES machines, so Peter Main came 
up with a way to take advantage of the calls. "The phone system is 
really the closing of the loop in a fashion that no other consumer 
company in this country has been able to do," he says. Phil Rogers, 
who oversees the consumer service department, says, "When we 
started, what did we know about consumer service? Not a damn 
thing. We knew about service to distributors because we'd been 
doing that for arcade games, but we'd never even talked to a 
consumer." When Main decided to set up the phone lines, Rogers 
figured that they needed four operators. They began with some six- 
button phones in January 1986. 

Calls flooded in, so many of them that Rogers bought a $40,000 
electronic call distributor in 1987. Within a year there were 550 
people answering 150,000 calls a week on a new, $3 million phone 
system. Customers called an 800 number to reach consumer ser- 
vice representatives. If a store was out of a highly sought-after 
game, service representatives could advise a caller on its availabil- 
ity. Representatives took the callers' zip codes, and by accessing a 
data base, could tell the callers where games were available. Call- 
ers' names and addresses were added to the mailing list. 

Many calls were from kids asking how to get past tricky villains 
in games. Consumer reps transferred the calls to Howard Phillips 
or other game players who worked for Don James. Some callers 
spoke Spanish and French, so bilingual representatives were hired. 

The telephone company informed Rogers that their 800 number 
was backed up most of the time because half a million calls were 
coming in every week. Nintendo decided to initiate a 900 (pay-per- 
call) number for kids to reach the Captain Nintendo Hotline for 
tips and adventure stories about Nintendo games. More important, 



GAME OVER 



Nintendo initiated game counseling. Kids by the hundreds of thou- 
sands called a separate 800 number with questions about games. 
Counselors manned the phones from 4:00 a.m. till 10:00 p.m.— to 
catch the early-morning calls from New York and the late evening 
calls from California — seven days a week. Hundreds of game coun- 
selors huddled in partitioned work spaces, each equipped with a 
Nintendo system and stacks of games, a computer terminal, notes, 
and "green bibles," bound volumes of game maps and secrets. 

Many of the counselors were lured by a "PLAY GAMES FOR 
A LIVING" ad in the Seattle Times. When they were hired, they 
were given an NES and stacks of games to master. "It was better'n 
Christmas," says Phil Sandoff, one counselor. He and his col- 
leagues fielded dozens of calls an hour, but the phone system still 
couldn't handle the load. Calls crashed into one another, and many 
were disconnected. 

Some of the callers had detailed questions, but others just 
wanted to talk. "William, do you have a question about a game or 
what?" Sandoff finally asked a caller who wanted to talk about the 
problems he was having in school. A seven-minute rule was initi- 
ated; no call could exceed that time limit. Counselors developed 
ways to cut calls short when kids started asking about their favorite 
rock groups and movies. One caller sought marriage counseling. 
His wife, he said, was going to leave him if he didn't stop playing 
"The Legend of Zelda." Sandoff 's advice to him was, "Shut off the 
game." 

The phones were overloaded, and the 800-line service became 
so expensive that Nintendo discontinued it. Calls to game counsel- 
ors became regular toll calls in 1990. Phil Rogers instructed the 
counselors not to speak with any child for more than three minutes 
without making certain that the parents knew that they were going 
to be billed for the call. After seven minutes, no matter what the 
child said, the counselors were told to gently get off the line. "Par- 
ents were not going to blame themselves for not controlling their 
kids," Rogers said. "They were going to blame us." Still the volume 
didn't slow down. 

Blaine Phelps, a counselor who became a supervisor in the de- 
partment, had answered the same newspaper ad before joining 
NOA (he had been living in his car after losing his last job). "We 



ENTER THE DRAGON 



don't just give away secrets," he says. "We are trained in the So- 
cratic method of game counseling." 

For years, the most asked question was about "The Legend of 
Zelda." Callers couldn't figure out how to get past Grumble 
Grumble, a creature lurking on level 7. 

"What does it mean when your stomach is going 'grumble grum- 
ble'?" Phelps would ask. 

"I'm hungry," responds a puzzled boy. 

"Right. And how do you make it stop?" 

"I get something to . . . Hey! That's it! Feed Grumble Grum- 
ble!" 

The game counselors did more than provide a customer service. 
First, they further bonded players to the company. The degree to 
which kids became obsessed with Nintendo amazed educators, psy- 
chologists, and parents. The magazine and counselors were part of 
the reason, encouraging kids to become immersed in it. Main says, 
"For our more youthful players, many of whom come home from 
school and find neither Mom nor Dad there, Nintendo came to 
mean more to them. It filled a larger role in their lives." 

Second, Nintendo was gaining great insight into its customers: 
they were finding out which groups were excited by what games, 
and how games could be made better. Counselors gave pointers 
but also queried callers about their likes and dislikes. "We used 
those calls as market research," says Main. 

The information about consumers — not from dated market re- 
search studies but from the daily input of diehard customers— gave 
Nintendo a living, breathing line to its customers every day, seven 
days a week, twelve hours a day. The feedback helped steer the 
company's product development and marketing strategies; the in- 
formation went right back into the development process. 
Yamauchi had always boasted that he never let marketing people 
influence R&D, but this stuff was too precious to ignore. Best of 
all, since callers often asked Nintendo counselors what games were 
coming, demand was created for games months in advance 
through the phone network. 

The counselors were some of the first people at Nintendo to 
realize that kids weren't the only Nintendo fanatics out there. 
Many of the early-morning callers were frustrated parents, some of 



GAME OVER 



whom had been up all night trying to beat a game. "It kills them 
that their children are better at something than they are," says 
Blaine Phelps. "They're obsessed with beating their kids." When 
Peter Main realized how many interested adults there were, he 
began directing marketing campaigns toward them. Similarly, calls 
from girls gave the company a better handle on what would make 
more girls buy systems and games. 

Don James ran another operation that was part of the marketing 
loop. In addition to his work preparing Nintendo for trade shows 
(Nintendo's CES booths became the largest in the consumer in- 
dustry, 60,000 square feet of light shows, lasers, rock music, and 
dancing girls) and overseeing design work done in-house, he 
headed product analysis, whose function was to monitor and main- 
tain the quality of games. It was a way to be certain that the games 
the counselors and Nintendo Power recommended were good. 
More important, it could be used to direct customers to the better 
games. 

When games were nearly completed in Japan, NCL sent them to 
Seattle, where James's crew reviewed them for the American mar- 
ket. They checked the text and characters in every game and fixed 
on-screen instructions and dialogue written in "Janglish," the Jap- 
anese designers' version of English. "GIVE YOUR BEST AND 
LAUGH A COAT," read the instructions to one game. "GET 
WEAPON. PECK CROSS TABLE." 

In addition to improper English, the product-analysis people 
were on the lookout for (presumably) inadvertent racial slurs. The 
object of one game called "Gumshoe" was to brutally slaughter 
American Indians (they were transformed into generic bad guys). 
In "Casino," the only thief was black, so the man's skin tone was 
changed. In one game, the "bare-breasted snake women" were 
renamed Medusas and "hell hounds" were renamed Cerberuses, 
after the mythological dog that guarded the entrance to Hades. In 
another game, the enemy was called a Jew's Ear, which was the 
translation in a Japanese dictionary for a kind of starfish. The 
memo to Japan read: "Please remove Jew's ear." 

Games also had to be extraordinary on their own merits, not 
dependent on characters that were well known in Japan but not in 
the United States. Eventually James initiated a formal evaluation 



ENTER THE DRAGON 185 



process headed by himself, Howard Phillips, and Shigeru Ota, 
known collectively as the Big Three. 

At first the evaluations were arbitrary and haphazard, but soon 
Ota (before he was tapped to go to Frankfurt to run Nintendo of 
Europe) adapted a system that had been used in Japan. He devel- 
oped a forty-point scale on which each game was to be rated. The 
system had eight categories, each one worth up to five points. The 
Big Three played every new game until they got a feel for it. Then 
they evaluated it for attributes such as challenge, graphics, and fun. 
Some games were sent back for revision; some were killed. If there 
were doubts, a larger group of evaluators, mostly game counselors, 
gave their opinions. Phil Sandoff was part of the GC6 (which sim- 
ply stood for "six game counselors"). "We're tough," Sandoff says. 
"First you think every game is the greatest. Then you get more 
critical." 

After the evaluations, Arakawa had a good idea of how a game 
would do in the marketplace. However, there were occasions when 
doubt persisted; for example, if the Big Three and GC6 disagreed. 
If Arakawa wanted more feedback, the toughest critics of all were 
called in. Hidden in a room behind a one-way mirror, Arakawa 
and James watched kids play the game. "Sometimes you cannot 
get the honest answer by asking questions of children," Arakawa 
says, remembering the failed focus groups back in New Jersey. 
"But if you watch their faces while they are playing, you can tell 
very easily whether the game is good or not. We have more than 90 
percent success in judging games." 

The most important evaluator for the company in the early days 
was Howard Phillips, who played more often and better than any- 
one else on Nintendo's staff. Phillips now wore pastel bow ties and 
white oxford shirts. Since shaving off the Manson beard, he had 
begun to look even more like Howdy Doody. He never seemed to 
age. Arakawa called him one day to say that he had decided to 
upgrade his title in the organization: henceforth, Phillips would be 
NOA's Game Master, the Jedi of the video-game world. 

The Game Master knew every game inside out. As part of the 
Big Three, he continued to play all new games and give feedback 
to the developers. His primary responsibility was, he said, as a 
player's advocate, influencing the designers. "These guys have 



1B6 GAME OVER 



been locked away for eight months or a year working on a project," 
he says. "It's their baby, but somebody has to tell them, 'There's a 
lot of great stuff in here, but this part just doesn't make it.' 

"Within the company, all the people with straight ties— sorry, 
guys — who are not really active users don't necessarily know what 
makes a game work or not work." Phillips could critique a game as 
deftly as Pauline Kael dispatched movies, although sometimes his 
reason for liking or disliking a game could consist of no more than 
"just because." 

Arakawa came to trust this response, for Phillips consistently 
judged games better than anyone. He mastered more than five 
hundred. ("Through perseverance and insider knowledge," he 
said.) Could he beat anybody? He answered modestly, "I don't 
know if I'm the best player in the world, but I know that on any 
given day I could beat just about anybody on any game." The key 
was that he wasn't trying to think like players; he was a player. His 
most common advice was a terse "Practice." 



\ 



\ 



THE GRINCH WHO v \ 

5TOLE CHRISTMAS ^ 



The Nintendo marketing blitz had the biggest companies in Amer- 
ica aiding and abetting (and, of course, cashing in on) the Nin- 
tendo invasion. Promotions were directed by Peter Main and Bill 
White, whom Main had hired in 1987. 

White, who wore gold-framed John Lennon specs, brushed his 
fair hair back around a youthful face. Although he was always 
dressed in standard corporate attire, he looked like he would be 
more at ease behind a drum kit in a garage rock band than inside 
the high-pressure upper echelons of Nintendo. 

White's father and sister were in advertising. After college, Bill 
got a job at Carnation while studying for an MBA in the evenings. 
Later he worked in the packaged-goods industry. When his boss 
convinced him to follow him from the "stodgy" packaged-goods 
business to high technology, White moved to Seattle to work as 
director of marketing for a computer software company. Frus- 
trated there, he picked up a copy of Advertising Age one day and 



1 SB GAME OVER 



saw that Nintendo was looking for a director of advertising and 
public relations. Two weeks later he was interviewed by Main, 
Arakawa, and Lincoln, and a week after that he had the job. 

White saw that Nintendo was dominated by its high-powered 
marketing machine. Since the company had so few products, it 
made only a few commercials a year. This meant the quality could 
be— had to be — phenomenal. The budget could go up to $5 million 
for one commercial, easily four or five times more than most other 
companies spent. In spite of this, because the advertising was so 
selective and specialized, the total advertising budget represented 
only 2 percent of sales, compared to the 17 or 18 percent of many 
other companies. 

In his dealings with the press, White quickly realized why work- 
ing for a Japanese company was unique. The attitude of the press 
toward Nintendo seemed extra critical; it had to be on the defen- 
sive on many issues, but without appearing defensive. 

Nintendo's sudden, pervasive infiltration of America was like 
nothing White had seen before. The game counselors, the maga- 
zine, the merchandising, and the TV shows helped make Nintendo 
far more than just a new hot product. It became a culture unto 
itself, and in spite of growing concerns about Nintendo in Wash- 
ington, D.C., and a critical press, that culture kept growing. 

White found advertising at Nintendo similar to what it must be 
like at a movie studio. Arakawa made the decision that software, 
not hardware, should be the focus of most advertising. "It is a 
software-driven business," White says. "The job is not so much to 
increase long-term brand equity as it is to build excitement around 
the next hit." 

One of the first commercials made under White was the market 
introduction for "The Legend of Zelda," which received a great 
deal of attention in the ad industry. A wiry-haired, nerdy guy walks 
through the dark screaming for Zelda. The next commercial, in 
November 1987, was for "Mike Tyson's Punch-Out!" It had beefy 
Tyson walking into a room, sitting down, grabbing an NES with his 
mammoth hands, shoving in a cartridge, and facing a wall full of 
screens. Then he looks into the camera and breaks out laughing. In 
another, a Nintendo "Ice Hockey" commercial, a kid is playing the 



THE GHINCH WHO STOLE CHRISTMAS 189 

game in front of a TV set when a puck comes crashing through the 
screen into his living room. 

In spite of these great commercials, in 1990 White and Main 
oversaw a shakeup in which they withdrew $20 to $35 million in 
Nintendo accounts from the firms of McCann-Erickson and Foote, 
Cone & Belding. Bill White said it was "philosophical differences" 
that caused the split. Leo Burnett, the large Chicago agency that 
advertised Miller beer and McDonald's, got the account. One in- 
dustry analyst said the decision was made almost arbitrarily. "They 
shake things up so that no one becomes complacent," he says. 
"You earn your money working for Nintendo; they'll drive you 
crazy before it's over." Everything was calculated. Kids didn't buy 
the lion's share of video games; parents did. Nonetheless, Nin- 
tendo advertised almost exclusively to children and teens. Kids 
controlled not only their own spending dollars but their families'. 

There were other ways to reach parents. In early 1988, there 
were discussions at Nintendo about the benefits of broadening the 
company's message to an audience beyond six-to-fourteen-year- 
old boys (if nothing else, to gain some respectability from parents 
who were skeptical about video games). Bill White and Peter Main 
determined that there was no need to ante up the many millions of 
dollars necessary to "buy another demographic target" with televi- 
sion advertising. Instead, they sought promotion partners who al- 
ready targeted these broader audiences. 

Pepsi had the right image and audience, so White went after it. 
Pepsi's promotion team was cautious. They studied Nintendo's 
market research and agreed to test an association with Nintendo 
with one of its smaller brands, Slice. The national TV promotion, 
which gave Nintendo systems and games away with Slice, worked 
so well that Pepsi executives said they wanted to plan a bigger tie- 
in for their enormous Christmas advertising campaign, this time 
with all the Pepsi products. Since Pepsi targeted the twelve-to- 
thirty-four-year-old audience, the key soft-drink consumers, Nin- 
tendo got vast amounts of exposure— and the credibility associated 
with Pepsi — for nothing. Commercials and in-store displays were 
only one way Nintendo benefited from the Pepsi tie-in. Pepsi 
bought nearly $10 million worth of Nintendo products at the same 



190 GAME OVER 



wholesale price Toys "R" Us and other retailers paid, and Nin- 
tendo was advertised on the outside of 2 billion cans of Pepsi. In 
return, Pepsi got the cachet of being associated with Nintendo. 

The promotion was so successful that Nintendo looked for other 
partners to increase its exposure to parents and other adults. 
Procter & Gamble approached Bill White and suggested a "dealer 
loader" that retailers put up in stores throughout the country fea- 
turing Nintendo characters on Tide detergent displays. For Nin- 
tendo, the association with a product that was so well accepted in 
America brought more immediate credibility. Tens of millions of 
people were reached in the $20 million promotion. 

The next partner Nintendo targeted was McDonald's. In 1989, 
White and Main sent a letter of introduction to the company's 
marketing division. The head of children's marketing at McDon- 
ald's was shown a preview of "Super Mario Bros. 3." After examin- 
ing Nintendo's demographics and the results of the Pepsi and Tide 
promotions, she launched an entire campaign — including "Mario" 
Happy Meals — around "Super Mario Bros. 3." 

Another promotion for "Super Mario Bros. 3" proved more 
valuable than any paid advertising ever could. Tom Pollack, the 
respected president of Universal Studios, met with Bill White and 
Peter Main and told them he wanted to make a movie around a 
video game. The Jetsons, a film that Universal had planned for a 
Christmas 1989 release, wasn't going to be ready and the studio 
needed a holiday film. When he heard about the various Nintendo 
competitions, Pollack came up with the idea of a Tommy for young 
kids that was called The Wizard. 

Nintendo received a licensing fee from Universal, of course, and 
approval of both the script and the film's game footage. Bill White 
went to the film set in Reno to see how things were going, even 
though "all we were really worried about was just making sure that 
the game footage was spectacular." 

It was. The "video Armageddon" scene was filmed at the theater 
at Cal Arts, the college in Southern California. Universal spent 
$100,000 on this set alone. As the movie's main character took 
the stage, the on-screen audience went wild when the feverish 
announcer told the contestants that the final, tie-breaking com- 
petition was to be on a game they had never seen before, the 



■ THE GRINCH WHO STOLE CHRISTMAS 191 

newest and best video game in the world. Dramatically, the 
curtains were drawn and a wall of monitors was fired up. "Here it 
is, ladies and gentleman," the announcer screamed, " 'SUPER 
MARIO BROS. 3!F " 

Nintendo itself could not have dreamed up a better promotion. 
The movie was ready by November, four months before the game 
was launched. The excitement in the theaters was far greater for 
"SMB3" than for the movie itself. The Wizard made money even 
with its relatively small box-office gross, but the groundswell of 
anticipation it created for "Super Mario Bros. 3" was enormous. 

When the game finally arrived in stores, the hype had been so 
intensive that the resulting rush for the game shocked even Nin- 
tendo. Bill White's team oversaw the creation of a television com- 
mercial that showed no game footage at all, but simply thousands 
of kids chanting passionately, "Mar-i-o, Mar-i-o, Mar-i-o . . ." 
The camera pulled back and the faces of impassioned boys and 
girls — decidedly white and clean-cut — became a sea of people call- 
ing out Mario's name. Then the camera zoomed back to a point 
out in space. Looking back toward earth, we see Mario's face in 
place of what should have been the North American continent. 

Nintendo reaped the rewards when "Super Mario Bros. 3" went 
on to outsell any video game in history, and gross more than $500 
million. 

Event marketing, as an NOA report called it, was another tactic. 
Nintendo hosted a thirty-city, eight-month-long nationwide video- 
game competition pitting local champions and then regional cham- 
pions against one another. The grand finale, the Nintendo 
PowerFest, was held at Universal Studios in December 1990. 
There was a Nintendo world championship in 1991 and, in the 
spring, the company held the Nintendo Campus Challenge, a two- 
day video-game competition on fifty college campuses. It was 
heralded as "a nationwide search for a college valedictorian of 
video-game play." 

Al Kahn, heavyset, with sparse red hair, ran Leisure Concepts, a 
licensing company. In 1988, Arakawa, whom he knew from when 
he worked at Coleco, gave him the rights — for a standard royalty — 
to market Nintendo's characters. Kahn licensed game characters 



192 GAME OVER 



for everything from TV shows and records to lunch boxes and bed 
linens, and the Nintendo license became one of the most success- 
ful in history. There were "Zelda" board games, "Donkey Kong" 
watches, and "Mario" everything. 

The first Nintendo television show, The Super Mario Bros. Super 
Show, first aired in fall 1988, and soon went into syndication. In fall 
1990, Captain N: The Game Master became a network show, and 
eventually there was a third show, Super Mario World. For several 
years running, Nintendo shows were numbers one and two on 
NBC's Saturday-morning schedule. 

The television shows brought Nintendo licensing fees, but this 
wasn't the primary benefit. "They're about trying to boost aware- 
ness of the characters," White says. "They're part of the endeavor 
to sell more Mario product by increasing the popularity and 
likability of the character, which, in turn, will help our character- 
licensing program — sales of T-shirts and all that — and of course 
the games themselves. There's really very little downside if the 
show is done in a quality manner." The fact is that no one could 
have confused the television shows with anything approaching 
quality, but they were no worse than other Saturday-morning fare. 

In addition to all the other licensing deals, Bill White also con- 
templated the idea of a feature film for Mario. Arakawa told him 
to research it slowly and meticulously. White made some calls and 
heard back from the man in Hollywood who handles Nintendo's 
cartoon shows: Dustin Hoffman wanted to play Mario. Hoffman's 
agent, Mike Ovitz, had contacted them to arrange a meeting. 

In New York for the newly devised Nintendo World Champion- 
ships, White sat down with Hoffman in a hotel room on the Upper 
East Side, and the two spent an hour discussing the movie. Hoff- 
man's kids were Nintendo maniacs, and he said he was dying to 
play Mario. White found himself in the awkward position of having 
to tell Hoffman that they were shopping the property. (Nintendo 
wanted Danny DeVito, as close to a dead ringer for Mario as 
Hollywood had to offer.) 

There was no lack of interest in Hollywood when it came to 
cashing in on the Nintendo craze. Arakawa rejected an offer from 
Fox because "they didn't understand the character." A feature 
deal was finally ironed out with Jake Eberts and Roland Joffe's 



THE GRINCH WHO STOLE CHRISTMAS 1 93 

company, called Lightmotive. They hired Barry Morrow, who 
cowrote Rain Man, to write a script, and a series of rewrite men 
were brought in. The directing team of Rocky Morton and An- 
nabel Jankel, creators of the original Max Headroom film for Brit- 
ish television, was signed up. The production designer was David 
Snyder, whose impressive credits included Blade Runner and Pee- 
wee's Big Adventure. 

The Nintendo movie went into production in May 1992 for a 
May 1993 release — without Danny DeVito, who had ultimately 
turned down the part of Mario. After all the talk about Hoffman 
and DeVito (Hoffman's agency, Creative Artists, says he never 
considered the part), Nintendo had to start from scratch. Although 
Tom Hanks had agreed to accept the role for $5 million, Nintendo 
went with Bob Hoskins, popular after his role in Who Framed 
Roger Rabbit, but much less expensive. The bad guy, King Koopa, 
was played by Dennis Hopper. 

There were a host of other promotions. In 1991 MCA released a 
record of "Mario" songs that included a "Mario" comic book. 
Among the musical numbers was the last song Roy Orbison re- 
corded before he died. There was another feature movie in the 
works, too, an animated movie similar to (but hopefully better 
than) the TV cartoons. 

Long before any talk about movies was heard in the halls and 
offices of Nintendo, Peter Main had told Arakawa that he felt it 
wise to market video games like movies — released cautiously, ra- 
tioned so that demand outpaced availability, and then withdrawn 
from circulation as soon as interest began to wane. This rationing 
tactic, treating games like priceless objects, worked. After all the 
hype about a new game took hold, kids dragged their parents to 
stores, but outlets couldn't keep the games in stock. The rush 
to get games such as "Super Mario Bros. 3" or "Link," the sequel 
to "The Legend of Zelda," caused near riots of excited game- 
buying. 

The competition to acquire games rivaled that for tickets to 
Michael Jackson's last concert tour. Ultimately more product was 
sold. A kid who was absolutely dying to get "Link" would arrive at 
a store, only to find it sold out. Maybe he would try a few other 



GAME OVER 



stores without success, but then he would buy another Nintendo 
game, so that his parents would end up paying $30, $40, or $50 for 
a second or third choice. Then, a week or month later, a new 
supply of "Link" would come in. The kid wanted "Link" more than 
ever then, and unless his were the most iron-willed of parents, they 
would succumb. Even the kids whose parents held out still man- 
aged to get games; in 1989, in a survey of what kids in Sandwich, 
Illinois, bought with their allowances and other money they 
earned, the near unanimous choice was Nintendo games. 

The editor of one toy-industry journal noted that "Nintendo has 
become a name like Disney or McDonald's. They've done it by 
doling out games like Godiva chocolates." In 1988, Fortune ob- 
served that "so far the strategy looks like a winner." 

"Inventory management" is what Peter Main called it. The Atari 
wave had floundered in large part because of a flooded market. 
Main made certain that scarcity whetted the public's appetite and 
sustained demand as Coleco had done in 1984, when there was a 
shortage of Cabbage Patch Kids. By design, Nintendo did not fill 
all of the retailers' orders, and it kept half or more of its library of 
games inactive. In 1988, for instance, it sold 33 million cartridges, 
but market surveys showed it could have sold 45 million. That year 
retailers had requested 110 million cartridges, or nearly 2.5 times 
the indicated demand. Main said that retailers exaggerated de- 
mand and Nintendo would rather have them pleading for more 
than have to worry about excess inventory. 

In contrast to the prerecorded-video business, in which an aver- 
age tape had the longevity of 90 to 120 days, some Nintendo games 
were popular for a year or more. If a game came through the 
evaluation process with a thirty-six or thirty-seven on the forty- 
point scale, Nintendo viewed it as "a potential grand slam," ac- 
cording to Main. A hugely successful game only had to sell 500,000 
copies, and grand slams could sell millions. 

When Nintendo released "Dr. Mario" in 1991, Charles Lazarus, 
head of Toys "R" Us, called Peter Main. "It looks like we're going 
to be short on 'Dr. Mario,' " he said. "What are you going to do 
about it?" 

Main made certain his largest customers got a healthy share of 
the games, but the company refused to cave in to their demands; 



THE GRINCH WHO STOLE CHRISTMAS 1 95 

no company had all of its orders filled all the time. By then, the toy 
and electronics as well as department stores were dependent on 
Nintendo, not the other way around. NOA accounted for an inor- 
dinate amount of the revenue of some companies. For Toys "R" 
Us, it meant 17 percent of its sales and 22 percent of its profits. 
Nintendo called the shots even when it came to companies used to 
throwing their muscle around. 

The fact that the parent company and the president of its Amer- 
ican subsidiary were Japanese exacerbated NOA's problems when 
it played rough. Tactics that would have been called aggressive if 
used by an American company were viewed in some quarters as 
unscrupulous when the company was Japanese. In only thirty-six 
months Nintendo had gone from near anonymity to the point 
where it accounted for 20 percent of the toy industry and large 
percentages of other retailers' gross sales. It was felt that "by defi- 
nition we must be doing something illegal," Peter Main says. No 
industry wanted to be so dependent on a single company, espe- 
cially a Japanese company. In Main's view, "Most of the criticism 
is from those who have decided not to join the club." Some, how- 
ever, hadn't been invited. 

NOA's reputation began to be suspect around the time of the 
most severe game shortages. Although Nintendo orchestrated 
some of the shortages, they were worse than it had planned, and 
consumer demand was higher than the most ambitious forecasts. 
In 1990, retailers were furious when Nintendo couldn't deliver as 
many systems as they could have sold that year. 

Nintendo had long since terminated its money-back-guarantee 
policy and replaced it with tough terms: order, receive shipment, 
and pay. The sales reps in the front lines made certain that retail- 
ers kept small inventories. By keeping customers on a short leash, 
Nintendo made enemies, but cash kept rolling in. This policy 
proved its worth in 1990 when the second largest toy-store chain in 
the United States, Child World, had serious financial difficulties 
and was on its way to bankruptcy. A listing of Child World's credi- 
tors was announced in December. Companies such as Hasbro and 
Mattel were owed up to $25 million, but though it had accounted 
for almost 20 percent of Child World's business, Nintendo wasn't 
on the list. "These other guys were pumping all this product into a 



196 GAME OVER 



bottomless pit," Peter Main said. "They are still owed that money 
today." Because Nintendo was working so closely with Child World 
and knew, from constant inspection of financial statements, that 
the company was in trouble, the retailer was told that it had to pay 
for its Nintendo product as much as a year in advance. "We are not 
loved for that," Main says. 

Nintendo also made retailers furious with its return policy. 
American retailers proudly boast, "Customer satisfaction guaran- 
teed or your money cheerfully refunded." However, when consum- 
ers return TVs and toasters to Macy's or Sears, the retailers return 
them to the manufacturers. 

In contrast, Nintendo said it would guarantee low defect rates. It 
claimed its defect rate was 0.9 percent for hardware and 0.25 per- 
cent for software, numbers similar to the VCR industry's high 
standards. Still, retailers sent systems back to Nintendo that had 
been returned by customers for reasons other than defects; they 
claimed to be dissatisfied or, typically, that their dog had chewed 
up a controller. 

Nintendo's reaction was to initiate a service network around the 
country. Service would be free for ninety days; after that, custom- 
ers would have to pay. Because of their extensive service network 
and the promised low defect rates, Nintendo announced a new 
policy: no returns. Once a game cartridge was opened, a refund 
was out of the question. 

Pandemonium followed. One of the largest retailers in the coun- 
try threatened to stop carrying Nintendo Systems and products. 
Nintendo refused to change the policy and the retailer refused the 
products. The retailer held out for three months; after that it 
crawled back and agreed to Nintendo's terms. 

Piles of cash poured forth from America to Japan. NCL's net 
sales figures shot up, mostly because of its U.S. subsidiary. 
Arakawa became responsible for up to 60 percent of Yamauchi's 
business, according to Hiroshi Imanishi. NCL's net sales in 1987 
were $1 billion. In 1988, they went to $1.5 billion. In 1989 and 1990 
they topped $2 billion, and in 1991 they shot up to more than $3.3 
billion. In 1992, Nintendo foresaw sales topping $4.5 billion. Pretax 
profits had risen from $186 million in 1987 to more than a billion 
dollars in 1991 and 1992. 



" THE GRINCH WHO STOLE CHRISTMAS 1 9 "7 

Nintendo's stock soared. In 1991 the company reached number 
eighty-six on Business Week's Global 1,000. In U.S. dollars, the 
company's market value was $14.56 billion, and it was ranked 
twenty-ninth among all Japanese companies. 

The relationship between Japanese parents and their American 
subsidiaries is, notoriously, one of master and slave. Hiroshi 
Yamauchi, however, after his initial reluctance, gave Arakawa far 
more autonomy in running NOA than most chairmen of Japanese 
companies gave the heads of their subsidiaries. He still made the 
most significant decisions affecting the future of NCL, but he did 
so in consultation with Arakawa. Minoru Arakawa, for his part, let 
down his guard somewhat; he had come to trust his father-in-law's 
instincts. He was in regular communication with Yamauchi; they 
often spoke several times a day. As they came to appreciate and 
respect one another, the relationship between the two men 
changed and they learned how to take advantage of each other's 
strengths. 

Arakawa still became angry when Yamauchi crossed the line and 
his advice seemed more like orders, and Yamauchi remained frus- 
trated that Arakawa wasn't better at communicating his plans and 
motives. But Yamauchi's doubts about Arakawa dissipated in pro- 
portion to the enormous amount of money he was receiving from 
NOA. Yoko Arakawa breathed easier; she had fewer fears about 
finding herself in the middle of clashes between her father and 
husband. If anything, she was sometimes concerned because the 
two men were getting along so well. 

As Yamauchi had determined the style of Nintendo in Japan, 
Arakawa imprinted his personality on NOA. His philosophy 
evolved into a unique management style. There were bumpy mo- 
ments as the number of employees grew with the sales figures, but 
he rarely lost his temper and never lost sight of his goal of the 
moment. He worked obsessively but he managed quietly, almost in 
a whisper. His mind may have been racing, but he said so few 
words that it sometimes made his associates uncomfortable. His 
silence was a distancing device; people squirmed while he deliber- 
ated. He never pontificated or lambasted, and his ego never 
seemed to lead him; in fact, he did what he could to keep out of 



1SB GAME OVER 



the limelight. Peter Main and Howard Lincoln made most of the 
required public appearances. Part of the reason was that Arakawa 
was embarrassed by his slow and cautious English; also, he felt he 
had better things to do with his time. (This attitude occasionally 
backfired. When Frontline, public television's investigative pro- 
gram, did a piece on U.S.-Japanese trade tensions, Arakawa de- 
clined to be interviewed, sending Howard Lincoln in his place. It 
looked as if Arakawa had something to hide.) 

In striking contrast with Nintendo's tough image, Arakawa was 
almost always quiet and even self-deprecating. He ruled by force of 
will rather than decibel level. NOA reflected his good humor. 
There were video games to play in Cafe Mario, the company's 
dining room, and there was lots of joking around. Arakawa himself 
instigated some of the better practical jokes. Once he circulated an 
old photograph of Howard Lincoln throughout the company as if it 
were an urgent memo. In the picture, taken in the seventies, Lin- 
coln wore a plaid suit and thick glasses. On it Arakawa had written, 
"Would you buy a used car from this man?" 

On another occasion, Nintendo employees decided to "initiate" 
a new employee (formerly with Atari, coincidentally) who had de- 
veloped the habit of parking his Porsche diagonally across several 
parking spaces so that no one would park too close to his prized 
auto. One day, everyone, Arakawa included, parked haphazardly 
around the lot. It was the new employee's worst nightmare: his car 
was in the middle of hundreds of cars, some of them perilously 
close. 

Professionalism was laced with northwestern ease. AT&T's exec- 
utives showed up on a Friday for a meeting with Arakawa. No one 
had told them about the no-suits-on-Friday dress code; they sat at 
a conference table in their standard corporate attire opposite 
Arakawa, who was wearing jeans, a T-shirt, and green felt sneak- 
ers. (After Howard Lincoln told him he looked like an elf, 
Arakawa never wore the shoes again.) 

In the lobby of NOA's headquarters is a smoky glass coffee table 
and a crystal horse's head in a glass case. Three receptionists an- 
swer telephones and greet visitors. After visitors are cleared, their 



THE GRINCH WHO STOLE CHRISTMAS 193 

names are typed into a computer and name tags are printed out 
before they are allowed inside. 

The office looks like most other offices in high-tech or commu- 
nications companies. There are nondescript lithographs of nature 
scenes on the walls and pastel-pink wall panels, gray carpets, and 
partitions. Still, Arakawa's invisible imprint pervades. Enthusiastic 
employees — many of them, including some department heads, 
conspicuously young — buzz in and out of open-doored offices (a 
memo was once distributed castigating managers who worked be- 
hind closed doors). The managers' offices at the periphery of the 
building all have large windows with open blinds. It is, Arakawa 
says, "for the light from outside and for clear thinking." Everything 
and everybody is connected — the repair center is near where new 
games are tested, which is near where the marketing team huddles 
to preview new commercials, which is near where the rows of game 
counselors field telephone calls from across the country. Arakawa 
admits there is nothing greatly innovative about his management 
style. "All I have done is taken the walls out between our managers 
and workers," he says. 

The corporate offices are also imbued with the sense that Nin- 
tendo deals not in circuits or microchips but in fun. A dash through 
the marketing department means running past the game counsel- 
ors, glued to TV screens and their "green bibles." In other corners 
are the game testers and evaluators. On the second floor is a 
sample World of Nintendo. Nearby is a mini-arcade of Nintendo 
games. In individual offices are reminders that the people of Nin- 
tendo are consumed by some wackier pursuits. Offices are deco- 
rated with baseballs, wind-up toys, stuffed animals, basketball 
hoops, and at least one blow-up doll. 

At the same time, there is a sense that something important is 
happening. It is customary for employees to work late, often past 
midnight. There are rumors that the pressure, albeit subtle, is be- 
hind more than a few martinis consumed in the evenings behind 
closed doors that are never supposed to be closed. Employees 
seem to work as hard for Arakawa as they work to sell Nintendo 
products. In a way, Arakawa has succeeded in creating, in Red- 
mond, Washington, the mentality of a Japanese company. 



GAME OVER 



Salaries are about average in comparison to similar positions in 
similar industries for the Seattle area. Nintendo refuses to release 
salary figures. Since it is not a public company in America, no one 
knows the executives' salaries. This is significant because Nintendo 
is thereby not forced to compete with the inflated salaries in the 
industry. Although his company makes more than American com- 
panies from Chrysler to IBM, Arakawa and his vice-presidents 
claim they take home relatively modest salaries. Nintendo follows 
the Japanese model of controlling executive compensation in rela- 
tion to salaries for starting workers, and all employees do well 
when the company does well because of a significant bonus pro- 
gram; employees can earn up to an additional 50 percent of their 
salary each year, depending on the company's and their individual 
performance. 

Arakawa and Howard Lincoln spend a weekend twice a year 
going through all the employees' salaries and awarding bonuses 
based on evaluations made by managers. But besides a decent 
retirement plan and good health benefits, that is it. "Nobody 
around here is going to make zillions of dollars," Lincoln says. 
"That's one of the things that you give up, even though we sure as 
hell have made a lot of people outside Nintendo millionaires." 

If not rich, at least they are suntanned. NOA bought four parcels 
of land on Hawaii, where Arakawa built two 9,000-square-foot 
oceanfront homes at a cost of $20 million. They were ready in the 
winter of 1991, when the Arakawas and Lincolns christened them 
on a vacation. The huge houses each have four bedrooms and open 
common areas with 180-degree epic views, a private swimming 
pool, and access to the Mauna Lani Golf Course. Employees can 
rent the houses for a subsidized fee on a first-come, first-served 
basis. After three months at the company, any Nintendo employee 
can rent either a room or a whole house. 

Still, more than bonuses and perks push the employees. With 
rare exceptions, Arakawa fills high-level positions from within the 
company. Nintendo employees cite this as the greatest benefit of 
working for him. The company's personnel director began as a 
receptionist. Howard Lincoln's former secretary went on to run the 
licensing operation. Counselors have become testers, and evalu- 
ators and executive assistants have become finance managers. As 



' THE GRINCH WHO STOLE CHRISTMAS 201 

in Japan, most employees enlist for the long haul. Attrition is low, 
and with a few notable exceptions, defections are rare; no one 
leaves Nintendo. 

Arakawa's primary concern is that Nintendo does not become 
the victim of out-of-control growth. This is reflected in small but 
meaningful touches (meaningful particularly when compared with 
companies that run so much less efficiently than Nintendo). There 
are no reserved parking spaces. There is no executive dining room. 
Cafe Mario serves burgers, a special of the day (chili-mac), pizza, 
salads, and frozen yogurt sundaes. There are no corporate jets 
("The day that happens I'm out of here," Lincoln says), and there 
is no executive suite of managers. Every office — including 
Arakawa's and Lincoln's — is a ten-by-ten-foot square. Department 
managers' offices are adjacent to the areas where their people 
work. 

Ever mindful of Atari's huge number of employees — layers of 
bureaucracy, vice-presidents of everything imaginable — Arakawa 
has initiated a system to control hiring at Nintendo. Either he or 
Lincoln have to sign an approval before a salaried employee can be 
hired. "We've made it so difficult for anyone to hire a new em- 
ployee that they better darn well have a good reason to do it," 
Lincoln says. The company remains lean and mean, as Arakawa 
likes to say. For him, Japanese tradition applies here: he believes 
that when an employee is hired, he or she is hired for good. 

To keep communication open, Arakawa has initiated weekly 
staff meetings. One week's meeting will be dedicated to the admin- 
istrative staff, the next to operations, and the next to marketing. 
Arakawa, Lincoln, Rogers, and Main always attend the staff meet- 
ings. Afterward, the four of them meet in a conference room to 
discuss whatever issues have been raised. 

As Nintendo grew and he feared the company would become 
unwieldy, Arakawa adopted a system of "action memos" and an 
authority chart, used in Japan for organizing companies. The levels 
of responsibility and levels of communication that resulted are as 
good as carved in stone. Department heads each know what the 
others are doing, and Arakawa knows what they all are doing. 

Expenditures are also carefully controlled. Most managers can 
spend up to $5,000 without approval, but an officer has to approve 



202 GAME OVER 

expenditures from $5,000 to $50,000, and Arakawa has to approve 
anything above that. Action memos about smaller transactions and 
other business decisions still cross Arakawa's desk. It is a way for 
him to know what is going on and to be able to track who makes 
which decisions. Anyone who signs off on an action memo is ac- 
countable. Nothing — from major purchases to press releases — falls 
between the cracks. It is important to Arakawa that there be no 
surprises. 

Arakawa feels he has to be a better organizer than his father-in- 
law. He does not have Yamauchi's sixth sense about products, and 
occasionally he is wrong. He believes that no one can learn that 
sort of judgment. "You are born with it," he says. "No matter how 
I study and how I train myself, I will never have those talents." But, 
he says, "my talent is maybe to find somebody who does have those 
talents." He does have a knack for choosing exceptional people. 
"Arakawa is held up by the top people around him," an employee 
says. 

Nintendo took over the toy business, a volatile and cut-throat 
multibillion-dollar industry, in 1988. 

So much money was at stake in the industry that careers rou- 
tinely were made or destroyed based on one product. It cost mil- 
lions to develop and manufacture a new toy and pre-test it with 
kids, and then tens or hundreds of millions to go into full produc- 
tion and to market. Risks were huge, and except for staple toys like 
Barbie and Matchbox cars, the biggest hits came and went with the 
whims of millions of kids. 

The toy industry was dominated by a few giants. In the race for 
product and market share, several companies gobbled up many of 
the smaller players. Hasbro, which had already acquired Playskool 
and Milton Bradley, bought Tonka, which also owned Parker 
Brothers and Kenner Toys, in 1991. ("G.I. Joe and the Real 
Ghostbusters join forces," the press said.) Hasbro then went off to 
battle against Mattel, taking over the number-one spot. To acquire 
new companies, the majors took on tremendous debt and interest 
commitments. This situation — plus the added effect of the reces- 
sion, which reduced discretionary spending — meant that in the late 
1980s and early 1990s, toy companies had to cut back on R&D. 



THE GRINCH WHO STOLE CHRISTMAS 203 

The result was that nothing dramatically new came from the toy 
business. In turn, no innovation meant bored customers who went 
where the excitement was: Nintendo. 

Nintendo ate up a larger and larger share of the toy business, 
becoming far bigger than Hasbro and Mattel combined. Of the 
estimated $11.4 billion spent on toys in 1989, 23 percent was spent 
on Nintendo products. Of the thirty top-selling toys in America, 
twenty-five were Nintendo or Nintendo-related. NOA held every 
spot in the top ten— and this was during the greatest shortage of 
Nintendo products. 

Arakawa couldn't fill orders. Before Christmas 1989, Peter Main 
was threatened with bodily harm and lawsuits by company manag- 
ers and presidents who blamed him for single-handedly destroying 
their business. The only stores that had Nintendo products at 
Christmas that year were retailers that had sufficient cash reserves 
to allow them to begin hording systems and games that summer. 
Toys "R" Us and a few other chains had invested heavily in Nin- 
tendo products for that Christmas and had a reasonable supply. 
Most companies, however, blamed Nintendo when their businesses 
plummeted. In one pre-Christmas month in 1989, toy-company 
stocks tumbled 42 percent, Fortune reported. Financial World said, 
"Nintendo ... is once again sticking out its tongue at the rest of 
the U.S. toy industry." 

The toy industry hated the fact that Nintendo didn't play by its 
rules: it didn't use December 10 billing; it didn't belong to any toy 
manufacturers' associations; it didn't bother showing its products 
at most toy-industry trade shows. Charges began to surface that it 
was cutting into the toy industry, taking over the toy industry, 
manipulating it by illegally fixing prices and intimidating retailers, 
threatening to cut off their product supply if they carried competi- 
tors' products or dared to discount Nintendo machines and games. 

Arakawa and Peter Main became the target of complaints — first 
from Nintendo's competitors, then from retailers, and eventually 
from members of Congress. Although Peter Main was named 1989 
Marketer of the Year by Adweek magazine, a profile in The New 
York Times had this to say of him: "To his admirers ... he is a 
master seller of children's entertainment. ... To his critics he is 
an aspiring monopolist, squeezing supply and jacking up profits." 



GAME OVER 



Since the toy companies couldn't beat NOA, they tried to cash in 
on the Nintendo craze. Five major companies got licenses from 
Nintendo to release character-related toys such as Mario and 
Zelda board games and action figures. Mostly, however, other 
companies hoped that Nintendo's invasion of their territory was 
temporary. They prayed for (and in many cases, expected) Nin- 
tendo to go the way of Atari as they bided their time with old 
standbys: Slinky, Mr. Potato Head, Lincoln Logs, Barbie. But by 
1991, Nintendo had become so well entrenched that the toy indus- 
try realized it wasn't about to disappear. Hasbro's chief acknowl- 
edged the troubles the country's economic recession had brought 
to his industry, but complained that "the toy industry has been 
much more impacted by Nintendo." 

By 1991, Toys "R" Us, which had a 22 percent market share of 
the toy business with its 450 stores (plus 100 more abroad), had 
sales of $5 billion, and Nintendo products represented almost one 
fifth of its total sales. Discounters became Toys "R" Us's biggest 
competitors (Child World and Lionel Kiddie City shared 7 percent 
of the toy market). Kmart and Wal-Mart controlled up to 10 per- 
cent each. The largest, Wal-Mart, didn't even carry Nintendo's 
competitors. Although Wal-Mart had no World of Nintendo in its 
stores, Kmart, which had held out for years, agreed in 1991 to open 
five hundred of the stores-within-a-store. 

The toy industry had been hurt by the recession as well as deep 
discounting of toys in pre-Christmas sales. Child World was on the 
brink of collapse (it finally went into Chapter 11 in 1992). The 
industry did better in 1992, but Nintendo still accounted for seven 
of the top ten toys of the year. It was, once more, the Grinch who 
stole Christmas. 

Whether or not Nintendo actually absconded with the toy busi- 
ness, many people see the company as an evil force because it 
deals in video games, hypnotizers of youth. Since video games first 
appeared, they, like pool tables and pinball machines, have been 
viewed as contributors to juvenile delinquency. Nintendo is consid- 
ered guilty by association. 

The more Nintendo became a force in the lives of millions of 
kids, the more concerned parents and educators became. The wor- 



THE GRINCH WHO STOLE CHRISTMAS 205 

ries were exacerbated by the degree of devotion kids seemed to 
have for the games and for Nintendo's culture. It was as if Amer- 
ica's kids had joined a cult and were under the spell of a cartoon 
character who did the bidding of a hidden Japanese lord. "Notice 
the way 'Super Mario' is drawn," a worried parent wrote in a letter 
to a magazine. "He has the eyes of someone who has been brain- 
washed." 

Fads had come and gone before, but this was different. Kids 
played video games, conspired with one another about game strat- 
egy, drew pictures of video-game characters, and for their home- 
work wrote video-game adventures. While kids also loved The 
Simpsons, In Living Color, and MTV, the intensity with which they 
played video games was noticeably different from that of the atten- 
tion they paid to television. Hospital staff saw how dramatically 
different Nintendo playing was from TV watching. Some seriously 
ill children in a hospital who played Nintendo required half as 
much pain medication as those who didn't. Television had no effect 
on the amount of medication required. 

According to doctors, playing Nintendo games has the power to 
alleviate pain for two reasons. First, the intensive interaction with 
video games requires a degree of concentration that acts as a 
diversion and distraction from pain — and everything else. Sec- 
ondly, the highly excited state achieved during this interaction gen- 
erates a steady flow of endorphins into the bloodstream. 
Endorphins are the naturally occurring proteins that mask pain 
and cause a sense of euphoria. Nintendo playing can cause a sort 
of high, but so can jogging. 

Parents, educators, and psychologists are concerned that Nin- 
tendo may be worse than television because of the relentless and 
hypnotic attention that is required. Some kids who play for long 
intervals complain of headaches and blurry vision. Some are diag- 
nosed with "Nintendinitis," severe muscle cramps in their game- 
playing thumbs. Experts worry that Nintendo may train kids to be 
aggressive and inure them to high degrees of violence. Others 
simply feel that any excuse to be in front of the television encour- 
ages antisocial behavior. 

Parents and teachers have noticed that kids who play a lot of 
Nintendo have increased levels of both determination, on the one 



20B GAME OVER 



hand, and of frustration, on the other. Some kids are out-of- 
control "Nintendo zombies," as Oprah Winfrey dubbed them on 
her television talk show. There were worries that video-game play- 
ing could be damaging to kids' cognitive and social development. 
Parents on Oprah complained that their kids played Nintendo 
games every free hour of the day. One guest on the show was an 
eleven-year-old boy who admitted that he was an addict who 
played twelve hours a day, before school and afterward until bed- 
time. Why his parents allowed him to play so much was another 
question, but the example wasn't unique; left to their own devices, 
kids play compulsively. 

Nintendo weakly answered this litany of concern with hollow- 
sounding arguments that claimed playing video games can actually 
be beneficial. It increases hand-eye coordination and response 
time. Unsolicited independent confirmation proved how much: the 
U.S. military found that recruits who had played a lot of Nintendo 
did disproportionately well in flight-training programs. 

The problem with Nintendo's retort was that there were many 
other ways for young people to improve hand-eye coordination — 
by building with blocks or playing catch, for instance. And how 
much hand-eye coordination does anyone (besides future fighter 
pilots) really need, anyway? The company's arguments did little to 
stem the growing concern about a generation of "vidiots," hypno- 
tized kids who blindly follow a pied piper in the form of Super 
Mario. 

junior an addict? a USA Today headline read. The answer, ac- 
cording to the article, was: not to worry. An expert from Pomona 
College, Brian Stoneholl, was quoted: "These games provide chil- 
dren with a strong sense of dramatic victory without the slightest 
bit of physical danger. People who play will simply keep at it until it 
loses its appeal." A mother said, "I'm scared to death of computers 
and [my kids] won't be. Sure, part of me wishes they'd be like my 
generation, happy simply swinging or jumping rope. But they're 
not . . . [and] at least they're not watching lots of TV." 

Many researchers believe that Nintendo is superior to television 
because it is interactive. Television is a one-way medium, with 
viewers passively devouring the programming and relatively little 



THE GRINCH WHO STOLE CHRISTMAS 207 

brain activity occurring. Video games, on the other hand, stimulate 
keen responsiveness. Many professionals feel that as a result Nin- 
tendo is far healthier. 

In addition to the active involvement demanded by Nintendo 
games, some experts feel that the games also require useful kinds 
of thinking. Video games, they claim, help develop problem- 
solving abilities, pattern recognition, resource management, logis- 
tics, mapping, memory, quick thinking, and reasoned judgments. 
"Knowing when to fight and when to run applies to other life 
situations," says a game maker. The lessons learned during video- 
game sessions can, he argues, be used in everyday life. 

Video-game violence is far less harmful than television violence, 
some professionals maintain, because the blood and gore in video 
games is less realistic. Even though game designers seem to spend 
inordinate amounts of time and energy dreaming up bizarre ways 
to kill and maim, for the most part the violence is the stuff of 
science fiction and fantasy. The concern that the games anesthetize 
kids to real violence and increase their aggression is debated by 
some psychologists who feel the opposite is true — that the games 
actually release aggression, and that all the beating up of video- 
game villains is cathartic. According to one San Francisco child 
psychologist, video games build self-esteem: "You accomplish 
something, you are rewarded. You may even save the princess." 

Howard Phillips notes that video games help build kids' confi- 
dence by rewarding them for success and resilience. "The number 
of times in school a teacher asks any one child for an answer is 
pretty limited," he says. "Most of the time kids raise their hands 
and respond and get back a quick 'Right' or 'Wrong.' If they're 
wrong, they've lost their chance and someone else is called on. But 
with video games, if a child makes a mistake — bang, he's immedi- 
ately back into it, trying again. They have constant, immediate 
negative and positive feedback." 

In her book The Second Self, Sherry TUrkle writes that video 
games have hidden benefits. "You have to follow rules and be 
logical and patient," she says. "Working out your game strategy 
involves a process of deciphering the logic of the game, of under- 
standing the intent of the game's designer, of achieving a meeting 



GAME OVER 



of the minds with the program." But the program came from the 
designer, not from the individual child. The creative choices in the 
current generation of Nintendo games are few. 

Peggy Charren, the founder of Action for Children's Television 
(ACT), a watchdog organization that looks at the effects of televi- 
sion on children, examined Nintendo and came away with mixed 
conclusions. Yes, video games helped make kids comfortable with 
computers and machines, but since most games were geared spe- 
cifically to boys, girls were excluded from that education. She was 
also concerned about the sexism and violence of many games. She 
concluded that although video games had some benefits that tele- 
vision couldn't offer, they were a passion that shouldn't be in- 
dulged to the exclusion of other activities. "Too much video-game 
playing is a problem not because of what you are doing but be- 
cause of what you are not doing," she said. Even Hiroshi Yamauchi 
seems to agree with her: "I mean, too much eating is bad, too. This 
is the age of the computer. No one can stop history — kids are 
interested in playing computers." Howard Phillips is more defen- 
sive in the face of parents who charge that Nintendo is addictive. 
"Nintendo is not responsible for raising your children," he says. 
"Parents who blame Nintendo are passing the buck." 

When Sigeru Miyamoto, the creator of Mario, Luigi, and Zelda, 
heard the complaints about video games, he simply shrugged his 
shoulders. "Video games are bad for you? That's what they said 
about rock 'n' roll." 

Arguments that justify video-game playing are unconvincing to 
many people. Nintendo could have done better at offering games 
with socially redeeming subject matter and games that educated. If 
kids are going to spend all that time playing Nintendo, their par- 
ents would feel better if they were learning something concrete 
and valuable. 

Nolan Bushnell believes it is incumbent on the game companies 
to offer more. Video games, he says, could be one answer to Amer- 
ica's education crisis. "Let's assume that 1 percent of the teachers 
in this country are absolutely fantastic," he says. "That means that 
only 1 percent of the students are able to take advantage of those 
excellent teachers. Teaching is the only environment in which that 



THE grinCH WHO STOLE CHRISTMAS 209 



is true. Everybody gets to benefit from the top 1 percent of the 
people in sports and in entertainment, but most kids go through 
school with no contact with the great teachers. And of course, 
great teachers aren't often able to do much teaching, since they are 
put in situations that are not conducive to education. Technology is 
the only thing that can change that. Put those great teachers on a 
cartridge, pop it into a game system, and kids everywhere will have 
access to them. Programs can react to the way a child learns. If a 
child shows himself to be an object-oriented, visual learner, the 
system can detect that and continue to teach him in that way." 

There is another bonus to video-game machines: the message 
comes via a medium that kids enjoy. Computer-game companies 
such as The Learning Company, Broderbund, and LucasArts have 
made fun games that are also educational. Inherent in the games 
are geography lessons, math, science, and reading. Kids who have 
access to computers can play them, but there are almost no educa- 
tional Nintendo games. The reason, as a software-company execu- 
tive noted, is that "kids like them like spinach." 

Nevertheless, Nintendo has seen the public-relations value of 
creating educational uses for the NES. If nothing else, it would 
appease parents, who control the pursestrings. "The view was that 
Nintendo must be bad; only cancer grows that fast," observes Peter 
Main. "We were less well prepared than we should have been in 
that period because we hadn't really devoted the time to providing 
the offsetting evidence. Beyond arguments about hand-eye coordi- 
nation, we stumbled through that period and looked a little more 
naive than we would have liked." 

Since then Nintendo has tried several things. First, it has encour- 
aged software developers to make games of socially redeeming 
value. "Sesame Street Learning Games" and "Donkey Kong Math" 
are examples. (They are also examples of why companies don't 
make educational games; they were dismal failures.) One more 
exciting product was released by a software company, Software 
Toolworks, in 1990. Dubbed the Miracle, this piano-teaching sys- 
tem is an electronic keyboard that plugs into the NES. The car- 
tridge that comes with it is filled with piano lessons. A child, 
following on-screen lessons, will practice on the Miracle. The pro- 
gram can monitor the lesson and point out mistakes. 



GAME OVER 



The Miracle is one answer to critics who say Nintendo has no 
higher purposes than blasting enemies and wasting kids' time. 
NOA's evaluators awarded the Miracle the highest rating ever 
given to a product developed outside the company, although it has 
sold only marginally well in spite of a $6 million ad campaign for 
Christmas 1991. By then the Software Toolworks designers had 
completed versions that work with IBM, Amiga, and Macintosh 
PCs, and sales picked up through the next year. 

More "educational," or at least creative, games were released 
beginning in 1992. Spectrum Holobyte's addictive "Wordtris" and 
a terrific animation program, Nintendo's own "Mario Paint," indi- 
cated that things might get better. 

Besides trying to push select educational software and hardware, 
Nintendo has tried to win over its critics with good PR. Nintendo 
in Japan had been criticized for contributing little to the commu- 
nity, but Arakawa understands the value of community and social 
involvement. In 1987, NOA was contacted by a young girl who had 
been an enthusiastic Nintendo player until she was in an automo- 
bile accident that left her paralyzed from the neck down. The 
company responded by developing a system that could be used by 
handicapped players and sold some two thousand of them at cost 
($175). 

Andrea Miano, a therapist who works with handicapped chil- 
dren at Shriner's Hospital in San Francisco, says the Nintendo 
Hands Free system "enables kids to play games other kids are 
playing; it builds a great deal of self-esteem. It's not simply diver- 
sionary recreation but therapeutic recreation. For a child who has 
very little ability to move at all— to do anything— to be able to do 
well in a game like this— it's fairly extraordinary what it does for 
them." 

Nintendo has also tried to alleviate some criticism by supporting 
research into ways that video games can be better teachers. In 
1991, Hiroshi Yamauchi awarded $3 million to MIT's world- 
renowned Media Lab, specifically for research on how children 
learn while they play. The Lab was working on high-tech learning 
tools that, according to Dr. Seymour Papert, "look and feel more 
like Nintendo games than schoolbooks." 

It was considered unlikely by some that the Lab would come up 



THE GRINCH WHO STOLE CHRISTMAS 21 1 



with any negative conclusions about video-game playing as long as 
Nintendo was its benefactor. It was a misguided criticism, however; 
MIT was not researching the effects of video games, but of new 
fields such as "constructivism," based on the Piagetian thesis that 
knowledge is built by the learner, not supplied by the teacher. It 
may well be that Nintendo games of the future will apply this 
principle— build knowledge by creating— and still be as much fun 
as the current generation of games. Marshall McLuhan once said 
that anyone who tries to make a distinction between entertainment 
and education doesn't know the first thing about either. There is 
no reason why Nintendo's popularity with kids cannot be exploited 
for higher ends. 

In a New York Times piece on education, Morgan Newman, 
cofounder of a multimedia publishing company, AND Communi- 
cations, was quoted as saying, "We think that quite probably what's 
going on with the crisis in education out there is that kids are often 
just bored. They're going home in the afternoon and watching 
MTV and then they go to school and the teacher says, 'Open the 
book to page 225,' and their eyes just glaze over. . . . We're em- 
bracing instead of denouncing the language that human beings in 
the 1990s want to hear to keep them engaged." Nintendo was one 
of the "languages" he spoke of. 

In a search for NES software that had the insidious secret 
agenda of education, groups have been formed around the coun- 
try. Dave Hammond, who spearheaded one effort, says, "If we 
don't produce more young people who know how to think and 
problem-solve we aren't going to be able to compete in the global 
economy. We need a way of attracting kids in in the after hours. 
More than 40 million kids play Nintendo. A system is in place. The 
games we're working on will be fun and educational. We plan to 
stage a Super Bowl of Nintendo on these games, an Olympics. 
There will be rewards— money and TV commercials. Kids at home 
will watch and say, T can do that.' We want it to be as attractive to 
them as football and wrestling." 

Nintendo has supported some outside projects and has initiated 
others. It underwrote a first-ever symposium on "Video Games in 
Popular Culture," a forum for researchers and academics to dis- 
cuss the impact video games have on their players and on the 



212 GAME OVER 



culture as a whole. The conference's organizer, Bowling Green 
University popular-culture professor Dr. Christopher Geist, said, 
"I don't believe anyone ever expected video games to have such a 
fundamental effect on our society in so many areas. [They] have 
become an integral part of the fabric of American life, changing 
the way we think, the way we learn, and the way we see the future." 

Nintendo has also teamed up with Junior Scholastic magazine, 
which held a contest that had students designing the "ultimate" 
video game. Schoolkids in classrooms around the nation wrote 
their ideas up in essays. Nintendo awarded students with college 
grants and scholarships for the best ones. Teachers were impressed 
that kids who previously had been reluctant to write at all were 
now turning in fifteen-to-thirty-page entries. The students dis- 
cussed their work with the kind of enthusiasm that teachers had 
not seen on any other subject. 

People who complain that Nintendo-obsessed children are miss- 
ing out on social skills don't understand the Nintendo cult. The 
exclusive club is a social network for millions of kids. To get in, you 
don't need to be a star athlete or the coolest or most popular kid in 
class. All you needed is a Nintendo system, or access to one (at a 
friend's, a clubhouse, or at school). Grown-ups may not under- 
stand it (or may feel excluded), but a Nintendo generation is 
emerging. "In the future we will be living, in part, in virtual real- 
ity," Nolan Bushnell says. "To survive and make it in that dimen- 
sion, we are going to have to be mentally awake. We are going to 
have to learn how to live and be comfortable and maneuver in a 
computer environment. These kids are in training." 



^\ ID 

GAME MASTERS ^\ 



For all its lofty high-tech pretensions, the video-game industry is a 
razor-and-razor-blade business. Just as Gillette wants consumers 
to buy their Atra shaver so they will then buy lots of Gillette Atra 
blades, video-game makers want consumers to buy their hardware 
so they will buy lots of their software. A consumer in America who 
invested in a Nintendo system ended up buying, on average, seven 
game cartridges (compared to an average of twelve in Japan). The 
average price of a cartridge was about $40. Software accounted for 
more than half of Nintendo's profits after 1989. 

The first software available for the Nintendo system in America 
was made by Nintendo itself, but Arakawa knew from the begin- 
ning that a wider variety of games than Nintendo could produce 
would be needed. It was no different from the computer business, 
where it was almost always understood that the more companies 
developing software for a hardware platform, the better. A Texas 
Instruments machine with closed architecture — that is, which ran 



214 GAME OVER 



only TI software— failed miserably. When the Macintosh was in- 
troduced, it sold poorly until outside software developers released 
an array of applications. The Famicom also did better as more 
games became available. Many of these games, including some of 
the bestsellers, were made by third-party licensees— by Namco, 
Capcom, Data East, and others. Those games, in turn, helped sell 
more hardware, which created the demand for more software. 
Also, American companies could be expected to bring in new kinds 
of games, ones particular to the sensibilities of American players. 

From the outset Arakawa planned on initiating a licensing 
agreement based on the one developed by NCL. In the United 
States, as in Japan, Nintendo would make money on all the games 
sold no matter who developed and marketed them, but Yamauchi 
had encountered problems that Arakawa wanted to avoid. In Ja- 
pan, in spite of NCL's controls, the overall Nintendo business was 
hurt by a glut of games, many of them of inferior quality. Arakawa 
wanted a licensing agreement that would prevent this from hap- 
pening in America. The built-in lock-out chip, Yamauchi admitted, 
was to censor games as well as to stop counterfeiters. He says, "It 
was our way of assuring consistent product quality and to keep the 
taste level high— no dirty games, no games with bugs or bad de- 
sign." It also protected Nintendo's profit from every game sold 
that played on the NES— an estimated 700 yen, or $5 per game 
developed by other companies. Had Gillette been able to come up 
with a patented, copyrighted system to lock out non-Gillette-made 
razor blades that fit the Atra, it too could have made money on 
blades made by competitors. 

In addition to the security system, Arakawa wanted a contract 
similar to NCL's to control the licensees. He and Howard Lincoln 
finally concocted one with restrictions so severe that even Lincoln 
anticipated problems. To assuage his fears— and to cover Nintendo 
—he had NOA's outside attorney, John Kirby of Mudge, Rose, 
research precedents to determine if they could get away with it. 
Kirby gave Nintendo the go-ahead. 

For the "privilege" of being allowed to make games for Nin- 
tendo's machine, developers had to grant Nintendo the approval of 
the games, packaging, artwork, and commercials. These terms— 
which, in spite of Mudge, Rose's verdict, would eventually be chal- 



GAME MASTERS 



lenged in court and questioned by the Federal Ttade Commission 
— gave Nintendo the right to reject games, or portions of them. 
For instance, NOA could censor such games as "Custer's Re- 
venge," which included nude Indian maidens tied to stakes, or a 
game that had, as targets, dancing babies that melted into quiver- 
ing, bloody blobs when hit by a bullet. 

The plan had Nintendo evaluating every game and giving it a 
rating on the forty-point scale. Licensees then would place an or- 
der for at least 10,000 cartridges. The finished cartridges, manufac- 
tured by NCL in Kyoto, would be sold back to the developers. 
Depending on the memory capacity required, Nintendo charged 
$9 to $14 per cartridge. The agreement stated that the price "in- 
cludes both the cost of manufacturing, printing, and packaging the 
[games] and royalty for the use of [Nintendo's] licensed intellec- 
tual properties." Licensees ended up taking on all inventory, distri- 
bution, and sales responsibilities — and all the risks. 

This was all fairly standard, based on the earlier NCL agree- 
ment, but Arakawa and Lincoln added more. An "exclusivity 
clause" was designed, whose purpose, they insisted, was to further 
encourage developers to make good games. Licensees could only 
make up to five Nintendo games a year and they could not release 
them to play on any other video-game system for two years from 
the time they were introduced. The games couldn't be sold outside 
the United States and Canada. "If they could only make it for the 
NES and only make a limited number of games, then it might dawn 
on them that they had better make a good game," Howard Lincoln 
says. "They couldn't afford to make many mistakes because they 
only had five shots a year." 

Lincoln, a master at licensing agreements since his Coleco- 
"Donkey Kong" coup, ironed out the wrinkles. It was as airtight 
and restrictive as anything ever seen in the industry, but Arakawa 
insisted that there was still room for huge profits for everyone. 
Licensees could sell the games to dealers for more than twice the 
price they paid for them. (Dealers would double the price again 
and sell them for between $30 and $55.) 

Arakawa offered licensees access to Nintendo's marketing, de- 
velopment, and customer services: promotion in the Fun Club 
newsletter (and, later, in Nintendo Power), development advice 



2 1 B GAME OVER 



from the game evaluators, and consumer service through the Nin- 
tendo game counselors. Approved games would have the Nintendo 
quality seal and could therefore be sold as part of Nintendo dis- 
plays in retail outlets. Licensees could also show their wares in the 
Nintendo booth at the most important industry trade shows. At the 
January 1991 show, Nintendo and its licensees occupied the most 
exciting CES exhibit anyone in the industry had ever seen; it filled 
a tent big enough for a three-ring circus. 

In 1985, however, no companies jumped at NOA's offer. Soft- 
ware companies that survived the Atari debacle felt as burned by 
home-video games as retailers did. They believed that the video- 
game business had shifted — for good — to computers. Computer 
games were safer to gamble on, too, since they were so much 
cheaper to manufacture. Publishing games on floppy disks cost 
nothing compared to the astronomical costs of cartridges, which 
required expensive computer chips. Marketing computer games 
also required less since the target audience was more defined. 

It took half a year for the first licensees to sign up. They were 
American subsidiaries of Japanese companies that, for the most 
part, imported video-arcade games. In many cases, they had been 
instructed by their parent companies to work with Nintendo; many 
of them had already dealt with NCL in Japan. 

These companies cautiously signed the agreements and set 
about developing home versions of their arcade games. They 
placed conservative orders of ten or twenty thousand cartridges 
and received their first shipments at the end of 1986. Everything 
sold. 

One of these companies, Data East, was run by Bob Lloyd, a 
former professional basketball player. Data East was a successful 
arcade game company when Minoru Arakawa called Lloyd to ask 
if he was interested in becoming a Nintendo licensee. Lloyd con- 
sidered it, since he had seen Nintendo's sales taking off through 
1985. 

Before meeting to discuss details, NOA sent Lloyd a draft of the 
third-party contract. In a subsequent meeting, he said he had a 
problem with the contract; he could commit to buy a minimum of 
10,000 units of a game, but he wanted to be able to buy smaller 
reorders. 



GAME MASTERS 2 1 "7 

Howard Lincoln shook his head: there would be no exceptions. 
Arakawa later teased Lloyd when Data East was placing orders for 
hundreds of thousands of games at a time. "It was a license to 
steal," Lloyd says. Data East and all the early licensees sold an 
average of 75,000 copies of every game they put into the market. 
Kids scooped them up as soon as they hit the stores. Soon Data 
East was bringing in $100 million a year, about ten times its total 
sales at the time Lloyd joined the company. 

Capcom, another early licensee, became a $160 million business, 
with 240 designers and programmers, because of its Nintendo 
games. Capcom's "Mega Man" series was a huge hit in America. It 
also made a lucrative deal with Disney. Games such as "Mickey 
Mousecapades," "Chip 'N Dale Rescue Rangers," and "Duck 
Tales" sold millions of copies. It wasn't always easy working with 
Disney, however: the Disney people had to approve every aspect of 
games based on their characters. Importantly, Mickey could never 
die; players lost "tries," not "lives." 

Capcom was one of the few companies kids knew by name (most 
kids knew only Nintendo games, not Data East or Konami names). 
Capcom also had its own game-counselor system, based on Nin- 
tendo's model. It encouraged kids to buy Capcom games by offer- 
ing rebates for multiple-game purchases. Fully costumed actors 
made promotional appearances as "Mega Man" in stores. Capcom 
also publicized its donations of NES and software to children's 
hospitals throughout the country. 

Konami Industry Company, Ltd., of Kobe, Japan, established a 
U.S. subsidiary in 1982. It had been successful in the coin-operated 
video-game business with such classics as "Frogger," "Super Co- 
bra," and "Scramble." In 1986, the company got its license with 
Nintendo of America and released its first game, "Gradius," an 
arcade hit, in February 1987. It was a big seller. The first Nintendo 
multiplayer game, "Rush 'N Attack" (guess what that was about) 
was introduced next. Other Konami releases included "Top Gun," 
based on the movie of the same name, which sold 2 million copies 
and won design awards. "Double Dragon" was another hit. 

In 1987, Konami convinced Arakawa to break the rules and 
allow it to form a new company, Ultra, in order to get a second 
license; it could then release five more NES games a year. One 



218 GAME OVER 



Ultra game would become the second-biggest moneymaker of all 
time. 

A comic book called Teenage Mutant Ninja Turtles— "heroes on 
a half shell"— was created by freelance artists Kevin Eastman 
and Peter Laird in May 1984. It featured four turtles named Don- 
atello, Raphael, Michelangelo, and Leonardo who brandished 
"numchucks" and other ninja weapons. According to the story, 
they had been real teenage turtles until a radioactive "mutigant" 
transformed them. As Teenage Mutant Ninja Turtles they said 
"dude" and "cowabunga" a lot and ate pizza whenever they could 
get their hands on it. They lived in the sewers under New York 
City. 

Eastman and Laird borrowed the thousand dollars they needed 
to publish their black-and-white comic book. They founded a com- 
pany called Mirage Studios (because the studio existed only in 
their minds) and traveled to a comic-book convention to hawk 
TMNT number 1. They sold 175 copies. 

A UPI reporter heard about Teenage Mutant Ninja Turtles and 
wrote a syndicated story that helped sell another 3,000 comics. 
Amazed that they had made a profit (of $100), Mirage Studios 
released TMNT 2, which included an ad for a T-shirt and buttons. 
The reaction stunned the pair. They signed a licensing deal for 
more Turtles products, and by the end of 1990 had sold $1 billion 
worth of TMNT merchandise in thirty countries. 

The Tbrtles was one of the most successful cross-licensing cam- 
paigns in history. There were Turtle movies, comic books, live rock 
'n' roll stage shows, toys, a breakfast cereal, and individually 
wrapped Hostess pies "straight from the sewers to you," that were 
filled with slimy green pudding. The TMNT cartoon show was the 
highest-rated Saturday morning show in CBS's history. The first 
TMNT movie made $250 million. 

Ultra snared a license with Mirage to make Turtle video games. 
In 1989 and 1990, the first two years on the market, Ultra's parent 
company, Konami, took in $125 million from the first "Teenage 
Mutant Ninja lUrtles" game. More than 4 million sold. 

There were various sequels. Konami sent a memo to retailers in 
early 1991: "Cowabunga! Check out what's ahead with your favor- 



GAME MASTERS 



ite reptilian moneymakers in March . . ." The list included the 
release of the movie Teenage Mutant Ninja Turtles 2: The Secret of 
the Ooze, in 2,500 theaters, a Ninja TUrtle interview with Barbara 
Walters on Oscar night, a soundtrack album featuring Vanilla Ice, 
ads for the movie on television, radio, and in magazines (over $60 
million was spent on advertising and promotion), and a tie-in for a 
free pizza with the purchase of the "TMNT 2" NES game. 

With the help of the Ninja Turtles, Konami, which had earned 
almost $10 million in 1987, took in $300 million in 1991. It became 
the largest of the NES licensees, the eighth-largest software pub- 
lisher (Microsoft was number one), and the ninth-largest toy com- 
pany in the United States — almost all based on the TUrtles, who 
also starred in hugely grossing arcade games. (One coin-operated 
TMNT game in a good location could bring in $1,000 a week at the 
peak of the craze.) Laird and Eastman's Mirage Studios became 
very real, earning $10 million a year. 

In the spring of 1987, Howard Lincoln was contacted by the first 
American companies that were interested in Nintendo's licensing 
program. The first American licensee was formed specifically for 
the purpose by Greg Fischbach and Jim Scoroposki, veterans of 
the Atari video-game boom. The two men, who knew each other 
from when they worked at a games company called Activision, had 
laughed at Nintendo a few years earlier when they saw Arakawa 
and Lincoln in a minuscule booth at a trade show hawking the 
NES with ROB. In 1987, however, Scoroposki went to the CES 
convention and observed how well Nintendo was doing. It had had 
a healthy Christmas, and Scoroposki told Fischbach that the com- 
pany just might make it. They decided to enter the Nintendo busi- 
ness. Scoroposki ran a sales organization that sold to toy stores on 
the East Coast, and with the growing number of Nintendo systems 
in homes and an existing shortage of good software, they felt they 
couldn't lose — certainly not very much. They decided to give them- 
selves until July of that year to see if they could make some money. 
They teamed up with other Activision alums, Robert Holmes (for- 
mer vice-president of marketing), and, to represent them in Tokyo, 
Hiro Fukami. To choose a name, they picked up a thesaurus. Fisch- 



GAME OVER 



bach said it could be anything as long as it started with an A or a Z, 
so Scoroposki opened the book and read some words aloud. They 
settled on Acclaim. 

The new company released its first game, "Star Voyager," in 
August 1987, and one of the first 3-D games, called "Tiger-Heli," 
soon after. Orders poured in, more than their most optimistic 
projections. "The market was absorbing anything," Fischbach says. 
In the first quarter of 1988, the brand-new company made more 
than $1 million in profits. Acclaim grew, merging with Gamma 
Capital Corporation, and Fischbach and Scoroposki took it public. 
Analysts pushed its stock, touting it as one of the best-run video- 
game companies. 

In 1990 Acclaim embarked on one of the most extensive cam- 
paigns of advertising, corporate sponsorship, and promotional tie- 
ins of all the licensees. On the back of Jell-O Pudding Pops were 
game tips. Free games could be won with coupons from Chips 
Ahoy cookies, and there were in-theater displays to promote the 
video-game version of "Total Recall," the Arnold Schwarzenegger 
film. Acclaim began its own smaller version of Nintendo Power 
(mailed to only 250,000 players), and the company copublished 
(with Scholastic) a book based on the game "Wizards & Warriors." 

As Acclaim grew, it made a smart deal with WMS, the company 
that oversaw both Williams Electronics Games and Bally's Mid- 
way. Acclaim bought the right of first refusal to make Nintendo 
games out of all WMS arcade titles (games such as "Narc," which 
included digitized action of live actors, and "Arch Rivals," a "bas- 
ketbrawl" game). Acclaim then became the second licensee to be 
able to produce more than five games a year when it bought an- 
other Nintendo licensee, LJN Toys, which MCA had unloaded. 
LJN had strong games in its catalog, including "Roger Rabbit," 
several "Spiderman" games, and "NFL Football." When the deal 
was being negotiated, Fischbach asked MCA's president, Sid 
Sheinberg, "Why don't you guys buy us instead of us buying you?" 

Sheinberg pushed up his horn-rimmed glasses and responded, 
"We need another company like a mouse needs a hat rack." 

It was a time of enormous growth for all the licensees. When 
LJN was sold, its chairman, Jack Friedman, founded another toy 



GAME MASTERS 221 



company called THQ. In late 1991 THQ's stock almost doubled in 
value when it received its license to sell Nintendo games. "Based 
on conservative estimates, we see sales of $40 million this year and 
$80 million in 1991," said an independent money manager in Busi- 
ness Week. He said he expected the stock to double again the 
following year, after which, when it hit $100 million in sales, "the 
likes of Mattel will want to acquire it." 

Acclaim and the other companies that had signed on early were 
there when the number of NES users jumped from 2 to 3 and then 
to 10 million. By the time other companies woke up to the video- 
game boom, hundreds of millions of dollars were being made by 
licensees. Twenty-five had signed on by the end of 1987, and there 
were forty by 1988. Companies that waited lost the opportunity to 
make fortunes. Trip Hawkins, founder of the computer-game com- 
pany Electronic Arts, realized that his biggest mistake was in wait- 
ing so long to enter the Nintendo business. His company missed 
out on sales of hundreds of millions of dollars. 

Through those early years there was a sense pervading the in- 
dustry that any games would sell well and that excellent games 
would sell enormously well. The potential was so high that the 
pursuit of hot games was as fervent as that of blockbusters in 
Hollywood. But the potential profits were higher than for movie 
companies because the development costs were much lower. A 
smash movie like Raiders of the Lost Ark could bring in $200 mil- 
lion, but it could cost a quarter of that to make and millions more 
to market, whereas a Nintendo game cost about $1 million to 
develop and, for the biggest games, several million to market. The 
only significant expense was NOA's central requirement: cash, pay- 
able in thirty days. After the money-back offer expired, Nintendo 
originally required 50 percent up front and the balance on delivery. 
Then most companies had to offer a secured letter of credit with 
their orders so that Nintendo was guaranteed to be paid on deliv- 
ery. Nintendo therefore had no accounts receivable to speak of. 

For the companies that could meet Nintendo's terms, the mar- 
ket remained voracious. In the record industry, releases with sales 
of a half million CDs or records were awarded a gold record and 
were handsomely profitable at a sale price of $12 or $15. Nintendo 
games were going gold every day of the week and sold for three 



222 GAME OVER 



and four times as much. "We were all fat, happy, and stupid," says 
Bob Lloyd. 

Minoru Arakawa took the brunt of the fury when, starting in 
May 1988, licensees couldn't get the volumes of the games they 
ordered because, Nintendo claimed, of a worldwide microchip 
shortage. Nintendo was accused of fabricating the shortage, or at 
least exaggerating it. Arakawa et al were keeping the licensees on 
a tight leash, doling out games like a child with a bag of M&Ms. 
Critics went so far as to accuse Nintendo of filling the orders of 
companies that were in favor and holding out on companies on the 
outs. 

At this time, there was a chip shortage that affected the entire 
electronics industry. Nintendo was manufacturing almost 2 million 
hardware units a month and 6 million cartridges, and all of each 
contained various numbers of chips that were in short supply. 
When the chip shortage was at its most acute, in the middle of 
1988, Nintendo responded by scrapping a dozen games in the cata- 
log. "Donkey Kong" was one victim. It also postponed producing 
new games, including Sigeru Miyamoto's "Link," and, later, his 
"Super Mario Bros. 3." Nintendo also began the controversial 
practice of parceling out cartridges among the licensees. Sean Mc- 
Gowan, a toy-industry analyst for the investment firm of Gerard 
Klauer Mattison Co., told The Wall Street Journal, "The scarcer 
something is, the more status gets attached to having it. You've got 
to keep [games] scarce." Still, he conceded, Nintendo had not 
manufactured the shortage to that degree. "Demand is far higher 
than they thought it would be, and they would like to see a lot 
more shipped. It's their strategy to undership demand, but this is 
ridiculous." 

Valid questions remained about how severely the shortage af- 
fected Nintendo and whether the company could have found alter- 
native chip sources. In addition, there was vehement criticism 
about the way Nintendo allocated cartridges. Hiroshi Yamauchi 
and Minoru Arakawa held the fates of licensees in their hands. 
Hiroshi Imanishi explained the allocation system when reporters 
questioned him in Japan. "Licensees tell us how many cartridges 
they want, and then we evaluate the games. Based on that review, 



GAME MASTERS 223 



we decide how many cartridges should become available." Repre- 
sentatives of American companies that were heavily (or com- 
pletely) invested in the Nintendo business were outraged. The 
shortage came when customers were clamoring for all the games 
they could get. 

Arakawa, Lincoln, and Juana Tingdale, who was in charge of the 
licensees, fielded the callers, who ranged from pleading and frus- 
trated to threatening. There was nothing the Nintendo brass could 
say to appease company presidents who had placed orders for, say, 
a million cartridges and had received only one or two hundred 
thousand. Some charged Nintendo with sabotaging their business. 
Some of the attacks were anti- Japanese: "they" were doing it to 
"us." The argument was that Nintendo could have gotten plenty of 
chips but refused to deal with non- Japanese semiconductor com- 
panies. Arakawa fanned the flames when he all but said that 
non-Japanese chips were inferior. "If Americans can make good- 
quality chips at cheap prices, we are prepared to buy them at any 
time," he said. "But we haven't been able to find the good quality 
at a good price here." Howard Lincoln said, "The licensing pro- 
gram has always been run with the approach that we would treat 
every licensee the same. We have never deviated from that. We 
want to help our friends, but we have never made exceptions." 

Bob Lloyd, who was one of Arakawa's and Lincoln's closest 
friends, affirmed that he received no special treatment, no matter 
how hard he tried. Greg Fischbach of Acclaim called and pleaded 
with Lincoln. There was nothing to be done, he was told. "The 
shortage was the great equalizer," Fischbach found. "Every com- 
pany sold out every game no matter how good it was, no matter 
how well the company was managed. Anyone with product was 
able to sell it." 

Nintendo could have purchased more chips as the shortage 
eased. However, the prices rose; certain chips quadrupled in price. 
In some cases, Nintendo had committed to sell cartridges for a 
fixed price, and rather than accept a smaller profit margin, the 
company chose to wait. By the time chip prices fell in the latter 
part of 1989, a crucial year and a half had come and gone, and 
companies had lost a chance to make millions of dollars. 

This was only one of the controversies that turned some licen- 



224 GAME OVER 



sees against Nintendo. Gail Tilden at Nintendo Power personified 
NOA's ability to make or break companies. Each month she and 
her staff looked at a list of new games and checked their evalua- 
tions. She, Howard Phillips, and several others tried many of the 
games themselves and determined, after consulting with their 
bosses, how much coverage they would get in the magazine. Tilden 
looked at how "deep" they were; as she put it, "how much cover- 
age it took to demonstrate the games through maps and text." 
Coverage in Power was a significant factor in whether or not a 
game would hit. Licensees that had a game coming out trumpeted 
Nintendo Power coverage in connection with any other advertising 
and promotion strategies. 

Charges surfaced that Nintendo used the magazine to manipu- 
late and control the industry. Good games from companies that 
were not in Nintendo's good graces were being ignored while some 
terrible games received pages of coverage. The head of one Nin- 
tendo licensee said, "If I pissed Nintendo off, I would get less 
product. My games would get hit in Nintendo Power, and they'd get 
low ratings." He would "piss" Nintendo off, he said, by releasing 
games for Sega or other competing systems, or by criticizing the 
security chip or licensing agreement. 

Tilden insisted that the licensees' own games had the same 
chances of extended coverage in Power as Nintendo's. However, as 
a spokesperson for one licensee said, "Their games always get 
covers, always get page after page in the magazine, while we are 
made to feel privileged to be mentioned in passing." Tilden's 
counterargument was that the games Nintendo released had supe- 
rior evaluations and earned the coverage. Nintendo did have a 
sound philosophy when it came to the games it released. They 
followed the model Yamauchi had pioneered at NCL; only several 
highly rated games were released a year. NOA culled them from 
NCL's list and chose only a few of those released in Japan. The 
ones that survived the cut were more likely to be great games. 
That, coupled with NOA's marketing barrage, resulted in major 
successes one out of three times, compared to one out of twenty 
for the licensees. 

To prove that Nintendo had the licensees' best interest at heart, 
it offered to assist them in game development. Howard Phillips 



GAME MASTERS 



met with licensees' designers and gave them critiques and sugges- 
tions. The Game Master's insights were deemed invaluable by 
some companies. "I responded as if I were a player out in the 
marketplace getting this one new game, comparing it with all the 
games that I've seen," he says. However, sometimes they were less 
than appreciative. "They thought we were telling them their busi- 
ness," Phillips says. 

Tony Harman, a manager in the game-evaluation group, also 
worked with licensees. Besides giving advice, the group made cer- 
tain that the games in development met Nintendo's standards. 
They didn't catch everything, however. Harman worked with a 
licensee called Jaleco on an NES version of "Maniac Mansion," 
which Jaleco had licensed from the game's creators at LucasArts. 
He gave the go-ahead and thousands of games were sold before 
someone at Nintendo noticed a quirky touch: a player could place 
a hamster in a microwave oven and the hamster would explode. 

Nintendo informed Jaleco that the exploding hamster had to be 
deleted in future cartridges. In a press release, Jaleco defended the 
original version of the game: "Although Jaleco USA does not 
condone the placing of rodents into a cooking apparatus, the fea- 
ture added a degree of fun to the already wacky and wild game." 

With Capcom USA, Phillips's team edited some of the grislier 
games that came in from its Japanese parent company, although 
Capcom's own censors weeded out the most offensive touches. 
The American version of the brutal "Final Fight" was released 
without some of the original's flourishes: blood oozing from 
wounds, and villains who were exclusively black and Hispanic. 
When a Capcom USA representative suggested that it was taste- 
less to have the game's hero beat up a woman, a Japanese designer 
responded that there were no women in the game. "What about 
the blonde named Roxy?" the American asked. The designer re- 
sponded, "Oh, you mean the transvestite!" Roxy was given a hair- 
cut and new clothes. 

Less dramatic modifications were made in "Mega Man." In the 
Japanese version, the hero got strength when he ate sushi. The 
Americans had it changed so that he devoured hot dogs. They also 
changed his eyes to make him appear less Asian. 

Some of the licensees tried to cash in with products other than 



GAME OVER 



games. They developed peripherals, or add-ons, to the Nintendo 
system. Besides Software Toolworks' Miracle piano, Bandai Cor- 
poration, a Japanese toy company and American licensee, made 
the Power Pad. It was an answer to parents who worried that kids 
spent too much time in front of the television, sluglike, playing 
Nintendo. The Power Pad, a three-foot-square flat plastic sheet, 
could be attached to the NES in the place of one of the controllers. 
Sensors on the pad "read" the footsteps of stocking feet. In combi- 
nation with games such as "Track Meet," players controlled on- 
screen characters (a sprinter, a long jumper) with their running in 
place and jumping on the pad. Nintendo made a deal with Bandai 
to sell the Power Pad with the NES in America, and half a million 
units were sold. 

Mattel released the Power Glove, a space-age piece of armor 
that kids strapped on to their hand and forearm. It was developed 
by JPL, a company that dealt in futuristic virtual-reality technolo- 
gies. Using the glove in place of a controller, players could use 
their arms and hands to play games. They fought Mike Tyson with 
full punches and drove a car with their arm outstretched, fist 
clenched, pointed at sensors that attached to the TV. Its first 
Christmas, the Power Glove sold out immediately, although inter- 
est in the product evaporated once kids realized how difficult it 
was to make it work well. 

Peripherals and games continued to be released by the hundreds 
a year as the number of licensees grew. There were more than sixty 
in 1990, when one of the most diehard holdouts, Electronic Arts, 
finally signed up. 

In a new industrial park along the freeway that connected 
Silicon Valley with San Francisco stood a three-tiered building that 
looked like a flattened Guggenheim Museum wrapped in blue 
ribbon. Inside, above the receptionist's desk on the second floor, 
were three monitors showing off video games such as "Skate or 
Die," "James Pond," and "John Madden Football." To reach the 
office of the company's founder, one had to wade through a sea of 
Technicolor Nerf balls. There, behind a small desk, sat Trip Haw- 
kins, boyishly dressed in a polo shirt, jeans, and Converse All Stars. 



GAME MASTERS 227 



His straw-colored hair was stuffed unsuccessfully into a San Fran- 
cisco Giants cap. 

There was a philosophy behind the Nerf balls, Hawkins ex- 
plained. "Whenever things get too serious around here, every em- 
ployee is obligated to load up with Nerfs and lead an attack, 
screaming, 'NERF ALERT!' " On many evenings, EA employees 
would be working in front of their computer screens when some- 
one would flip a switch and the place would be cast into darkness 
except for the muffled beams from emergency lights and the glow 
of computer screens. It was a signal to employees to take position 
and be on guard. Their colleagues were crawling around partitions, 
under desks, or around Xerox machines. Each armed with five 
Nerf balls, they set out on the attack. Anyone who was nailed was 
out. "The idea," Trip Hawkins says, "was to keep people loose and 
remind them why we're here. They know what's going on here 
when they see that you can bounce a Nerf ball off my nose in a 
meeting. It sets a tone for the company. . . . It's from playfulness 
that you get your best creativity." 

Hawkins's office had Nerf balls in a fruit bowl among the or- 
anges and apples. On the wall was a mock "Dewar's profile" and 
schedules of all the major-league baseball teams. Because of — or 
in spite of— all this, Hawkins's company had grown to be one of 
the largest and most respected entertainment computer software 
companies in the world. 

Hawkins had grown up in Pasadena, California, where he spent 
a childhood devoted to playing games. In high school, he designed 
board games. During his first year at Harvard, he made a football 
simulation that used actual sports statistics. 

Hawkins created his own interdisciplinary major: strategy and 
applied game theory, combining social science and computer 
courses. Back then, in 1975, he decided that one day he would start 
an entertainment software company. He even knew when: 1982. 
"That's how long it would take for the technology to get into 
enough homes so that there would be enough people who would 
want to buy it," he says. 

Hawkins enrolled in the MBA program at Stanford, and after 
graduating joined Apple as its manager of market research. The 



GAME OVER 



Apple II computer had been out for a year; Hawkins was the 
company's sixty-eighth employee. He helped put together a service 
program and instituted the industry's first field training for dealers. 
He also worked on the first accounting and mailing-list programs, 
and on a word-processor, Apple Writer. It was extremely exciting 
to be part of Apple during those early years. "We didn't know what 
we were doing," Hawkins says. "But we believed in it with every- 
thing we were." 

Regardless of how well Apple did during Hawkins's tenure, he 
considered the company a brief stopping-off point. In May 1982, 
according to his plan, he left Apple at the age of twenty-eight, and 
arranged a meeting with a hand-picked team, renegades from Ap- 
ple and other Silicon Valley companies, and Bing Gordon, a col- 
lege buddy. Gordon was working in San Francisco at Ogilvy and 
Mather, the advertising agency. After graduating from Stanford, 
he had worked for a string of agencies, and then was product 
marketing manager for an industrial electronics firm. Tanned, with 
thick hair brushed to the side, he was a dandy, dressing in outfits 
that included expensive white shirts under a vermilion double- 
breasted wool vest, flowered rainbow tie, gray flannel pants, and 
black loafers. 

Hawkins held a powwow at his house with Gordon and his group 
of potential founders. "Hypothetically, if there was a company, 
what should it be like?" he asked. As they brainstormed, Hawkins 
told the group that Don Valentine, the venture capitalist who had 
helped finance fledgling companies such as Apple and Atari, was 
ready with a $2 million investment. Before the meeting was over, 
the group decided to go forward. They chose the name Amazing 
Software. Later, inspired by the movie studio United Artists, they 
changed it to Electronic Arts. 

At Apple Hawkins had seen that the most creative developers 
didn't want to work on staff. "When you put them on staff, they 
lost something." He believed that EA needed to find out a way to 
motivate people to do their work independently. He believed that 
the programmers were artists who ought to be treated, motivated, 
and marketed as such. 

Hawkins used the old Hollywood studio system as a model and 
put software designers under contract. He supported them but 



GAME MASTERS 229 

gave them the freedom to work in whatever eccentric ways they 
chose. He was the first to credit them as authors on their games. 
The packaging was designed by graphic artists, like at record com- 
panies. Bing Gordon came up with an advertising campaign that 
summed up the company's driving principle. A handful of EA's 
independent software designers were photographed in a soft black- 
and-white shot; their faces were youthful, intense, and individual. 
A headline asked: can a computer make you cry? 

Hawkins built the company with his rare combination of techie 
nerdiness and business acumen. His management style was quirky 
and creative. Staff meetings were something between a church 
service and an NFL huddle. There were impassioned speeches 
about "the mission," as well as lots of clowning. Before the meet- 
ings, Hawkins asked his department heads if they had any "prais- 
ings" for him. If he was told, for example, that an employee had 
put in a seventy-hour week in order to close the books for the 
month and, in the process, had discovered a glitch in the accounts- 
payable process, Hawkins singled the person out with lots of 
thanks and congratulations. He also gave out performance awards. 
At year-end meetings, he awarded most-valuable-player and 
rookie-of-the-year prizes. 

EA's first year brought creative success — the Studio, as it be- 
came known, produced its first games — but it was selling less than 
half the number of games it could have if it had better distribution. 
Larry Probst, another Stanford graduate, was hired as vice-presi- 
dent of sales. Probst had been national sales manager at Activision 
and national accounts manager at Clorox, and had held various 
positions at Johnson & Johnson before coming to EA. He worked 
with Hawkins to create what they named the Electronic Arts Affili- 
ated Labels, modeled after the distributing companies in the re- 
cord industry. The idea was to hire more sales reps and build a 
bigger organization to help EA distribute more software. Other 
software companies, such as Mediagenic and LucasArts, became 
EA Affiliated Labels — that is, EA distributed their games — and 
the consortium soon became the WEA (Warner-Elektra- Asylum) 
of the computer-game industry. This distribution business grew to 
represent a third of EA's earnings. 

Hawkins continued to oversee the company when it grew to 



230 GAME OVER 



three hundred employees and three divisions. Besides the Studio, 
where the games were created (eventually more than a hundred 
game designers were under contract, managed by in-house produc- 
ers), and the Affiliated Labels, there was a growing international 
division. Electronic Arts had many hits, but Hawkins was careful 
not to rely on them. No one game accounted for more than 6 
percent of revenues at any time. The company had a sound reputa- 
tion with good games, innovative marketing, and the most effective 
public-relations department in the business. The Electronic Arts 
spokespeople — Hawkins, Gordon, and Probst — were probably the 
most quoted experts on entertainment software in the industry. 

EA's games were as diverse as "Skate or Die," "Populous," and 
a complex strategic historical war game, "Patton vs. Rommel." 
Many of the most successful were sports games. Hawkins recruited 
sports stars (Larry Bird, Michael Jordan, John Madden) and other 
celebrities (Chuck Yeager) to endorse games. The big names car- 
ried marketing weight. Retailers might not have wanted to hear 
about yet another football game, but they were interested in "John 
Madden Football." The endorsements came in the beginning for 
relatively small fees; Dr. J. signed on for only $20,000. When John 
McEnroe's agent wanted $350,000, EA passed. 

A decision Hawkins made from the beginning that proved a 
successful policy was to design software for many computers, from 
the Apple II to Amiga to Commodore 64 to IBM. The one plat- 
form for which Electronic Arts did not make games was video- 
game systems. Hawkins felt that the post-Atari-boom video-game 
business would all land back on computers, where it belonged, and 
when Nintendo made its appearance in the United States, he ex- 
pected that it would quickly disappear. Other companies that had 
been in the video-game market, such as Activision, had switched 
over to make games for IBM and Apple PCs. Many people in the 
industry felt the future had gone to PCs forever. 

Hawkins felt that computers were superior in every way. The 
one was relatively boundless; the other was rinky-dink. He incor- 
porated his prejudice in the original Electronic Arts business plan, 
a commitment to "stay with floppy-disk-based computers only." 
He believed there was a growing number of computer users who 



GAME MASTERS 



were hobbyists, primarily interested in entertainment, and that 
they bought their computers to play games. In addition, there were 
the people who bought their home computers for business but who 
would also buy a game or so every year. Hawkins believed that 
computers would soon become the all-purpose machines for every- 
thing from spreadsheets to "Pac-Man." 

He was wrong. Most people bought computers for business, not 
entertainment. For their leisure time they wanted to get as far 
away from computers as possible — at least as far away as the family 
living room and the television set, to which a video-game machine 
was attached. In focus groups, kids affirmed this. The message 
EA's researchers heard was that computers were boring. Mom and 
Dad wanted kids to use one, their teacher wanted them to use one 
— computers were in the category of things that you had to do. 
When the researchers asked the kids what they wanted to do, the 
answer was nearly unanimous: Nintendo. 

"The best companies and the best programmers were making 
computer games," one of Hawkins's game designers says. "But the 
Nintendo player didn't care about the sophisticated leaps we were 
making on computers — the frame rate of the images or incredible 
sound. They just wanted fun. It was like we were making gas guz- 
zlers and the Japanese were making subcompacts. Our competi- 
tors saw the writing on the wall and started making subcompacts." 

The NES sounded the death knell for the dream of the personal- 
computer revolution, that of one computer per family. Bing 
Gordon, Hawkins's buddy, compared it to the dream of James 
Watt, inventor of the steam engine. Watt had believed that one day 
there would be a single engine in every household that would 
connect to all kinds of pulleys and gears to run everything from the 
washing machine to a food mixer. Instead, technology progressed 
rapidly and motors were soon so cheap that every household could 
have many — everything from the washing machine to the 
Cuisinart. Microprocessors got cheaper too. Instead of one central 
computer running everything in a household, there were many 
microprocessor-based tools. 

Electronic Arts had backed the wrong horse. Nintendo became 
gargantuan as EA stood by and watched, and Hawkins was in 



GAME OVER 



trouble: he almost lost his company. At one high-level meeting in 
1989, when financial advisers complained about him, Hawkins 
pulled what one of his partners calls "his Nikita Khrushchev"; in 
the middle of a discussion of the fate of EA, he removed his shoe 
and pounded it on the table. 

EA had had its worst year ever, and in the face of this downturn 
Hawkins had decided to expand the company's overseas opera- 
tions. In the span of a year, he founded operations in England and 
Japan and acquired companies in Australia and France. It was too 
much too fast. The companies in France and Japan had to be shut 
down, and the British and Australian operations had to be 
trimmed back. When EA wrote off a lot of mistakes and finished 
with its first quarterly loss in six years, the board finally stepped in. 
Board members threatened to remove Hawkins as head of the 
company. One told him plainly, "You're not qualified to be the 
president of a company this size." 

Hawkins knew they were wrong. He believed firmly that he 
could build EA into a profitable $100 million company; he just 
needed time. After he got the meeting's attention with his shoe, he 
says, "I ate a lot of humble pie. I wasn't a prima donna. I said, 
Tine. What is it you think I should do?' " 

Lots of ideas were voiced that day, but Hawkins already knew 
the answer. "We had to go into the video-game business," he says, 
"and that meant the world of mass market; there were millions of 
customers we were going to be trying to reach." He spoke elo- 
quently, and the more he spoke, the more animated he became. 
He addressed the group, admitting that it galled him to realize that 
he had been wrong. Now it was time to catch up. 

Hawkins spread the news to his troops. "Basically," one engi- 
neer says, "he read us the riot act." 

There were some serious concerns. The inventory risk — the 
need to place such large orders with Nintendo — was dangerous. 
EA needed capital. 

In August 1990, a headline on the business pages asked: will 
electronic arts sizzle or slumber? The article revealed that the 
computer-game company was going public at $8 a share. With 
money from the public offering, the company charged into the 



GAME MASTERS 233 

video-game business. Its first "buy" of cartridges from Nintendo 
cost $4 million, equal to the entire finished-goods inventory of all 
of the company's floppy-disk products — five hundred of them — on 
a single game. The risk was enormous. 

Moreover, creating video games was different. Previously Elec- 
tronic Arts had been targeting sophisticated computer gamers, and 
their designers weren't much interested in making games for 
twelve-year-olds. The company had made almost no action games. 

Hawkins turned his missionary zeal toward designers, setting 
them the task of creating Nintendo games. Many felt the effort was 
beneath them, and that the 8-bit system was a giant step backward; 
they were used to 16-bit systems with sixteen-color high-resolution 
EGA and VGA displays and 640K of RAM. Such games had two, 
four, six, or more megabytes of instructions. To write for Nintendo 
meant working with its slower processor, 128K of RAM, fewer 
colors, and a lot less storage. 

Although most Electronic Arts developers sneered at video 
games, some young designers were ecstatic. "At last," said Michael 
Kosaka, the author of "Skate or Die." 

Kosaka sat at a desk so cluttered with computers and video- 
game systems and monitors that his office looked like a control 
panel at a hipper version of NASA's Mission Control. In addition, 
there were toys, a Darth Vader poster, a stereo, a Raleigh twenty- 
one-speed bike, and books about karate in English and Japanese. 
Kosaka was deep into his first Nintendo game, "Skate or Die 2." 

Another designer contracted to EA's Studio was Will Harvey, 
who had founded his own company when he was only sixteen. 
Harvey had been an honors student from Foster City, California, 
an Eagle Scout, and a football player when he thought up the idea 
for a computer game that transformed his Apple II into a music 
studio. The program, "Music Construction Set," was remarkable 
for its time. A joystick controlled a movable hand on the video 
screen that picked up notes, sharps, clef signs, and other symbols, 
then set them down on a staff. The computer played them back 
when the tiny hand pointed at an icon of a piano. The program 
required no computerese and no previous knowledge of musical 
notation. Trip Hawkins saw it and decided "in about three sec- 



23<4 GAME OVER 

onds" that he wanted it. Reviewing it in 1983, Time said it was "one 
of those rare pieces of software that open up the computer market 
to a new class of consumer." 

After further versions of Music Construction Set, Harvey came 
up with a game called "Zany Golf." Then he ambitiously set out to 
create an adventure game like none he had ever seen. The game, 
"Immortal," was unique because of the perspective from which the 
player experienced the game — as if he were looking down on the 
world from heaven. The main character wasn't a typically youthful, 
virile warrior but an ancient wizard. The best part of the game, 
Harvey believed, was that "when you got to the end, you realized 
that what you probably thought was wrong." 

When Harvey's game was completed, EA sent "Immortal" to 
the Nintendo evaluators. This was the first time EA worked with 
Nintendo, and the computer-game purists were skeptical of the 
feedback they would receive because they assumed they knew a lot 
more about computer games than anyone at NOA. 

Weeks later, when Nintendo came back with suggestions, Har- 
vey was surprised at how sensible they were. The evaluators 
wanted him to add a more substantial musical score. They said that 
the wizard should have more than one life per game. The wizard's 
battles should, they said, take place on the screen; they should not 
be conceptual battles; the hacking and pummeling was an excuse 
for kids to press the buttons on the controller a lot. 

Nintendo wanted Harvey to add a scoring system, which he re- 
sisted. "This was a quest," he said. "The only score is survival." 
Harvey also resisted the addition of more than one life. "Just like 
in life, you should have to figure it out the first time — slowly, 
cautiously — or die," he said. Still, he agreed to all of Nintendo's 
suggestions except for the scoring. 

Bing Gordon said that in spite of his reservations about Nin- 
tendo, "over the course of working with them I've been highly 
impressed with the integrity of their people. The rating system is 
fair. On a scale from zero to a hundred, where zero meant the 
system was totally manipulated for Nintendo's self-interest and a 
hundred meant that it was absolutely democratic, they'd probably 
get a ninety. I've seen a little bit of self-interest, but this is Amer- 
ica, the land of self-interest." 



GAME MASTERS 



PC games, formerly EA's mainstay, became less important. EA's 
PC business shrank from 93 percent to 66 percent of total software 
sales. The PC software business remained solid (overall industry 
sales were up 13 percent in 1990 after declining in 1989), but it was 
dwarfed by video-game sales. Within a year of going public, EA 
stock more than quadrupled in price, reaching over $35. In late 
1991 the company was trading at up to thirty-four times earnings. 

In December 1990, Hawkins turned the day-to-day management 
of Electronic Arts over to Larry Probst, and Bing Gordon took 
over a larger and more visible role. Hawkins, who retained the title 
of chairman, had other business to attend to. In an item appearing 
in The New York Times in June 1991 it was revealed that Hawkins 
had stepped down at EA because he had a new project in the 
works. "Industry sources say that [Electronic Arts] ... has engi- 
neers hidden in the California woods." They were, the article said, 
working on a new kind of video-game machine, and Hawkins was 
personally in charge. 

Electronic Arts was one of an increasing number of Nintendo 
licensees that thrived. By 1991, a hundred companies had Nin- 
tendo's quality seal. Many did well, but in exchange they were 
turning over large amounts of money, as well as tacit control of 
their businesses, to Nintendo. One company, however, refused. To 
fight back, its executives set a plan in motion that would, they 
believed, permanently break Nintendo's choke hold on the Ameri- 
can video-game industry. 



THE BIG SLEEP 



11 



> 



"You have no idea what you have taken on: a tiger who will skin you piece by 
piece." 

— Howard Lincoln 



Minora Arakawa had an odd habit: he fell soundly asleep at the 
most inauspicious moments. 

On the way back from Japan one time, Arakawa and Howard 
Lincoln stopped off in Honolulu, where they checked into the 
Kahala Hilton. As it happened, the two Nintendo bosses, both 
passionate duffers, arrived while the Hawaiian Open was in pro- 
gress at their hotel. 

Arakawa and Lincoln put on their swimming trunks and headed 
for the pool. En route, Arakawa suggested a detour; they should 
go check out the tournament, he said. 

Lincoln told him he was crazy; one does not simply go watch the 
Hawaiian Open on a whim. Tickets sell out months in advance. 

Arakawa shrugged and said, "Come on. Let's see." 

Along one fairway, the two men found a place to watch from 
behind a roped-off area and stood there for a while as a succession 



THE BIG SLEEP 237 



of powerful drives arced past them. Lincoln remarked on one of 
them. "Nice shot!" he exclaimed. 

When he heard nothing back, he turned and discovered that 
Arakawa was gone. Looking around, he saw that Arakawa, who 
had snuck under the rope, was sitting in the middle of the fairway 
under a palm tree. 

The golfers, including Jack Nicklaus, Tom Watson, and Lee Tte- 
vino, continued to tee off, their golf balls flying over Arakawa's 
head. Then, as Lincoln watched, Arakawa stretched out, his arms 
under his head, and fell soundly asleep. 

Looking around to make sure that no one was watching, Lincoln 
ducked under the rope and headed over toward Arakawa, who was 
comfortably snoring. "Mino, for Christ's sake, wake up," Lincoln 
called out, shaking his friend. 

The Nintendo president was unwakable, so Lincoln lifted him as 
best he could and dragged him off the course. Walking by at that 
moment, Tom Watson shook his head in disgust. 

They were safely off the course when Arakawa awoke, smiling 
up at Lincoln. He stretched and sat up. "What's wrong?" he asked. 

Most of Arakawa's catnaps were harmless, but there was one 
notable exception. In August 1988, Mino and Yoko threw a small 
but lavish dinner party in their beautiful house in Medina, an 
exclusive suburb of Seattle. Yoko, a studied cook, had prepared an 
elegant dinner: an appetizer of scallops, a mixed salad, and barbe- 
cued salmon. Their guests were Howard Lincoln and Hideyuki 
Nakajima and Randy Broweleit, executives of Atari Games, which 
had just become a licensee. 

After the meal, they took their drinks outside. They sat on the 
expansive deck, from which they had a view of the lake and Seat- 
tle's skyline. Arakawa fell asleep. 

Hide (pronounced He-day) Nakajima, a compact man whose 
conversation was punctuated with a euphonious giggle, became 
visibly impatient. Yoko said that it was not unusual for her husband 
to conk out in the middle of a dinner party, but Nakajima looked at 
Arakawa with disgust. He would not forget this moment. 

Hide Nakajima had a bulldog stance accompanied by a decep- 
tively gregarious grin. In a business where players never showed 



GAME OVER 



their cards, Nakajima appeared to be unusually open. He was a 
spark plug in a world of staid and sober executives. 

When the original Atari was formed in 1972, Nolan Bushnell 
had hired a Japanese-American businessman to form a subsidiary 
in Tokyo. The businessman asked an attorney to help him find a 
general manager, and the man had recommended his brother, 
Hide Nakajima. 

Prior to that, Nakajima had been with Japan Art Paper Com- 
pany for seventeen years, working his way up the corporate ladder. 
(Coincidentally, for generations Japan Art Paper had sold paper to 
Nintendo for hanafuda playing cards.) In spite of a string of pro- 
motions, Nakajima was disillusioned with the company. "I saw that 
I was just a gear, and that no matter how much I accomplished, I 
was replaceable," he says. Leaving the security of the large firm 
and the three-hundred-year-old paper industry, he jumped at the 
chance to work at the small, entrepreneurial Atari, in an industry 
that was just being invented. 

Atari Japan imported games such as "Pong" and "Gran Trak" 
from its U.S. parent company. Competing with dozens of new 
entries in the fledgling coin-operated video-game business, includ- 
ing Nintendo, Nakajima met the same kind of resistance to video 
games in Japan that Bushnell found in America, but sales slowly 
grew. No matter how much came in, however, the money disap- 
peared. According to Nakajima, employees were stealing large 
amounts of cash. The result was that Atari's suppliers were not 
being paid and the company was nearly bankrupt. Nakajima's boss 
left the sinking, debt-ridden company and Nakajima was, by de- 
fault, left in charge. Nolan Bushnell would later single out the 
Japan debacle as one of his first huge mistakes. 

In meetings with Bushnell and other Atari executives, Nakajima 
argued that the company was salvageable, but the Japan subsidiary 
had already lost several hundred thousand dollars, which Atari 
could ill afford since it was struggling to establish itself in the 
United States. Nakajima used some of his own savings to pay off 
suppliers and keep Atari Japan afloat. 

His friends from the paper industry suggested kindly that 
Nakajima return to his former job. He declined. He planned to do 
what he could to stop the company from sinking; failing that, he 



THE BIG SLEEP 



would go down with it. Bushnell felt he had no choice but to sell 
the subsidiary, debt and all, so Nakajima made inquiries. 

Atari's name was valuable, and several coin-op companies made 
offers. Sega, which then made jukeboxes and pinball machines, bid 
$50,000. The head of Namco (then still called Nakamura Manufac- 
turing Company) wanted Atari too. Masaya Nakamura, the 
founder, saw the acquisition as a way to instantly expand his small 
kiddie-ride company. Nakamura shocked Bushnell and all other 
potential bidders by offering to buy Atari Japan for $800,000, six- 
teen times more than Sega had offered. After negotiations, the bid 
was adjusted to $500,050, still an astronomical amount. Bushnell 
was delighted to take the money, and in 1972 Nakamura got Atari 
Japan and a debt that took two years to pay off. 

Hide Nakajima planned to quit. He had no intention of working 
for Namco; it would be worse than working for the paper company 
because at least Japan Art Paper had prestige. Nakamura, how- 
ever, convinced Nakajima to stay on for six months. 

Assigned to build up Namco's international business, Nakajima 
succeeded, increasing sales from $5,000 to $500,000 within that 
brief time, and an astonished Nakamura convinced him to stay on 
longer. Three years later, Nakajima decided he was in the video- 
game industry to stay. He found working for Nakamura to be 
instructive. "He could be difficult, but he could foresee the fu- 
ture," Nakajima says. "That was his destiny. Everyone thought he 
was mad when he paid so much for Atari, but it turned out to be a 
very wise investment." 

The deal with Bushnell allowed Nakamura to be the exclusive 
representative for Atari products in Japan for ten years, and as a 
result Namco became one of the largest video-game companies in 
Japan. Nakamura bought rights to other games, had others devel- 
oped in-house, and sold them by the thousands. He also opened 
arcades that featured Atari games, and his earnings quintupled. 

Nakamura promoted Nakajima to executive vice-president of 
Atari Japan in 1978. He also asked Nakajima to join Namco's 
board of directors. Later that year, Nakajima convinced Nakamura 
to open a subsidiary of Namco in the United States, and he was put 
in charge of the project. 

Nakajima flew to California and, with a small movie camera, 



240 GAME OVER 



filmed sites around the Bay Area. With Nakamura's approval he 
chose an office across the street from Atari's old headquarters in 
Sunnyvale. Namco America opened its doors in 1978. To help him 
run the new company, Nakajima hired a young attorney, Dennis 
Wood, away from Hewlett Packard. From Sherman, Texas, Wood 
had graduated from the University of Montana's law school in 
1974. After passing the bar, he became a justice of the peace in 
Missoula, Montana, when he was only twenty-three. Later he 
worked in the legal department of Hewlett Packard until he ac- 
cepted Hide Nakajima's offer. Namco America had started with 
two employees, Nakajima and a secretary, and it was ominous that 
the third employee should be an attorney. 

Nakajima did the coin-op deals and Wood did merchandising 
and licensing. Wood licensed Namco's Japanese arcade games (in- 
cluding "Pac-Man") to companies such as Atari (in America) or 
Bally's Midway. He also opened a merchandising department that 
licensed "Pac-Man" pillowcases, pajamas, and the like. He brought 
with him his homespun wit and amicable demeanor. The elfish 
attorney became Namco America's vice-president, second to 
Nakajima. As the company grew, Wood was also put in charge of 
personnel, administration, and legal affairs. The American subsid- 
iary brought in a significant income for Namco. Virtually all its 
income was pure profit, for there was no overhead. As Wood says, 
"What overhead? The lights. Our salaries." 

Namco America grew through the early 1980s, when Nakamura 
visited Nakajima in the United States. Apropos of nothing, 
Nakamura one evening said that he wanted to buy Atari. Nakajima 
eyed his boss warily. 

"Are you serious, Mr. Nakamura?" Nakajima asked. "I don't 
think it's possible. They are about a hundred times bigger than 
Namco." 

Nakamura said, "Hide-san, you will see. Soon the sun will re- 
volve around Namco." 

In 1985, after the Atari crash, Warner sold off the scraps of the 
company that had once grossed more than any of the other busi- 
nesses in its multitentacled organization. Steve Ross, Warner's op- 
probrious chairman, couldn't get rid of it fast enough. 
Nonetheless, Ross knew that video games and related technologies 



THE BIG SLEEP 



would be back, and he retained interests in both Atari Corporation 
(25 percent) and Atari Games (40 percent). He sold Atari Corp. to 
Jack Tramiel, the former chief of Commodore. Tramiel wanted a 
computer company but wasn't interested in Atari's game division, 
which he could have had for almost nothing. 

The result was two Ataris, "both of which don't like each other," 
says Dan Van Elderen of Atari Games. "Our claim always was that 
we're the real Atari— the original Atari." Van Elderen says Tramiel 
resented Atari Games because it was living, breathing, thriving 
proof that he had been dead wrong in his decision to stay out of 
coin-operated games and software. 

When Atari Games was on the block, Nakamura told Nakajima 
it was time. Nakajima, who knew the Warner executives, negoti- 
ated and got Atari Games for Nakamura for a little over $10 
million. The company had assets— talented engineers, a plant, and 
some successful coin-op games (such as "Marble Madness" and 
"Gauntlet")— but it was losing money. "We were buying the po- 
tential," Dennis Wood says. Price Waterhouse accountants advis- 
ing Namco warned against the purchase, but Nakamura went 
ahead. The size of Namco America increased dramatically; some 
230 people came with the new company. So did a distribution 
network and a factory in Ireland with another seventy employees. 
Most important, though Namco was acquiring a company that had 
been badly managed, it made some of the best games in the history 
of the business. 

The new owners of Atari Games wrestled the company into 
financial shape, helped along when "Gauntlet" became a huge 
seller. Throughout, Nakamura and Nakajima sparred over the best 
way to run it. Nakajima felt that his boss was holding him back. 
Rather than viewing Atari as an investment, Nakamura still saw 
the American company as a competitor that he didn't want to see 
become too powerful. He also didn't like sharing ownership with 
Time Warner. 

Nakajima found negotiating with Nakamura increasingly frus- 
trating. He also was angry because of Namco's shoddy distribution 
of Atari's games in Japan: Nakamura wouldn't sell Atari games to 
competing arcades. On the other hand, Nakamura was fed up with 
an American subsidiary outside his immediate control, so he 



2 42 GAME OVER 



agreed to sell Atari Games to Nakajima and Time Warner in 1987. 
Time Warner, Nakajima, and other employees absorbed the 
Namco shares so that Time Warner had roughly 80 percent and 
Nakajima and the employees' group 20 percent. Nakajima then 
resigned from Namco's board and from his position as president of 
Namco America. 

Wood and Nakajima, running Atari Games without Nakamura's 
meddling, had been watching the Nintendo market, and in 1987, 
Wood proposed that they make the leap. The Nintendo business 
was growing, and it would be easy to take advantage of it with 
conversions of Atari's arcade games. Atari Games was prevented 
from entering the home video-game business under its own name 
because of the agreement Warner had made with Jack Tramiel. 
They came to a simple solution: they would create a new company. 

Nakajima and Dennis Wood met in the chairman's office at the 
Atari Games headquarters in Milpitas, California. They were 
joined by Dan Van Elderen and another executive, Randy 
Broweleit, and together ironed out plans to start a subsidiary that 
would make games under license for the NES. It was named by 
Nakajima. The Japanese describe the go board as the universe. 
The central point of the universe, the point of the creation of all 
things, is the tengen. 

Broweleit was to run the day-to-day operations of Tengen, which 
he did for over a year before leaving to start a company that 
licensed games that played on the NES. When he left, Van Elderen 
took over as Tengen's chief. 

Dan Van Elderen had been with Atari longer than anyone, be- 
ginning, when he was only twenty-three, as a technician— before 
Atari even had an engineering department— and working on No- 
lan Bushnell's assembly line building coin-operated "Pong" games. 
He stuck with Atari through the sale to Warner, Warner's sale to 
Namco, and Namco's buy-out. He had been the senior vice-presi- 
dent of research and development before being put in charge of 
Tengen. 

Tall and powerfully built, Van Elderen appeared intimidating 
when in fact he was a soft-spoken, kind man who had an easier 
time blending in with his engineers than with his business team. He 
talked engineer's talk more easily than profit margins and market 



THE BIG SLEEP 



share. An outdoorsman, he had reminders of his favorite pastime 
throughout his office. There was a wire sculpture of a fisherman 
and a sign that read: the lord does not subtract from the allot- 
ted time of man the hours spent fishing. But in his office there was 
also a glimpse of another side of his nature. On the wall was a 
sticker with the word Nintendo on it. The word was slashed through 
in red. 

It was not difficult for Tengen to convince Nintendo to allow it to 
become a licensee. Atari Games made some of the best arcade 
games, and it was the name most people associated with video 
games. Arakawa believed it was significant: even Atari had suc- 
cumbed to Nintendo's dominance. 

In mid 1987, Nakajima and Dennis Wood met with the top 
Nintendo executives at a coin-op industry show and said they were 
interested in a license. Nakajima and Wood said they wanted ex- 
ceptions to the licensing agreement— to make more than five 
games a year, for instance. 

As composed as always, Arakawa said that changes to the basic 
agreement were impossible. He shrugged as if to indicate it was 
not personal. "All licensees have to be treated the same," he 
pointed out. He did agree to have attorneys negotiate some of the 
minor points in the agreement, but that was as far as he would 
bend. Still, the Atari Games executives agreed to play by Nin- 
tendo's rules. 

Atari Games' attorneys worked with Nintendo's on the agree- 
ment— "tweaking it," as Lincoln puts it. Although it was signed in 
January 1988, it was a charade. It would turn out that by then Hide 
Nakajima had already begun his efforts to "put Nintendo in its 
place," in the words of an Atari executive. 

In the spring, Tengen representatives, including Nakajima, came 
to Redmond for a meeting. Trying to coddle Nakajima— to smooth 
feathers that had been ruffled by Nintendo's refusal to grant him 
special terms— Arakawa shared report after report, divulging "the 
jewels of our business," Lincoln says. He supplied Nakajima with 
details of how the business ran day to day, of how individual retail- 
ers should be handled, and much more. Arakawa says he went out 
of his way to befriend Nakajima and advise him. 

The first Tengen games for the NES, announced at the June 



2-4-4 GAME OVER 



1988 CES, were a conversion of the ever popular "Pac-Man," a 
terrific baseball game called "RBI Baseball," and "Gauntlet," con- 
verted from the hit arcade game. The games had received high 
evaluations from the Big Three and GC6, and Nakajima was 
poised to sell many of them. His timing, though, was unfortunate, 
because his entry into the Nintendo business occurred during the 
worldwide microchip shortage. Prior to the CES, Nintendo had 
made an announcement to all its licensees that the chip shortage 
meant that NCL would not be able to fill their orders. Nintendo 
would apportion game cartridges, treating all companies equally, 
but they all would get fewer games than they wanted. 

Licensees were asked to estimate the number of cartridges they 
would be ordering. From this list Nintendo calculated the number 
of cartridges they should reasonably expect. The allocations de- 
pended on several factors, including a game's ratings and the size 
of a licensee's distribution network. An elaborate system had been 
devised, NOA claimed, with rules that applied to its own games 
too; orders of the company's own games would be cut back or 
would be postponed in order to supply chips for a licensee with a 
better game. 

The first time the calculations were made, Lincoln and Arakawa 
decided to personally call the licensees with the results. They 
thought they would run through the list in a single morning, but it 
took days; the people at each company begged, pleaded, argued, 
flattered, and argued some more. It was such a difficult process 
that the decisions about subsequent allocations were sent in the 
mail. Lincoln jokes, "Arakawa and I would run away and hide so 
that we wouldn't have to take the heat." 

The allocation system, Arakawa insisted, was as fair as it could 
have been. Some of the licensees understood, but others felt Nin- 
tendo was using the shortage to manipulate— and, in some cases, 
strangle — them. 

Hide Nakajima's orders for games were halved, then halved 
again by Nintendo. Tengen received less than 25 percent of its 
initial order and, finally, a tenth of what it claimed it could have 
sold. "They are keeping supply low to keep prices high," Randy 
Broweleit charged. 



THE BIG SLEEP 



The head of the independent Software Publishers Association, 
Ken Wasch, charged in December 1988, "The SPA believes that 
Nintendo has, through its complete control and single sourcing of 
cartridge manufacturing, engineered a shortage of Nintendo- 
compatible cartridges. Retailers, consumers and independent soft- 
ware vendors have become frustrated by the unavailability of many 
titles during the holiday season, and believe that these shortages 
could be prevented by permitting software vendors to produce 
their own cartridges." 

Dan Van Elderen asked if Nintendo would allow his company to 
receive larger orders if he found sources for the scarce chips. Nin- 
tendo agreed, on the condition that Tengen pay the difference if 
the chips were more expensive. Other companies went the same 
route; Acclaim searched for chips too. Van Elderen found a source 
and informed Nintendo, whose representative said the company 
would evaluate the chips in Japan and, if they were acceptable, 
inform Tengen how much it would pay for them. "They would tell 
us" Dennis Wood says. But the pricing issue never came up, be- 
cause Nintendo decided the chips were unacceptable. 

Wood claims that Nintendo rejected the chips because they were 
not made in Japan, and that NOA said that American or Korean 
chips were not of a high enough quality. "We're talking about chips 
for games, not for a Cray computer," Wood steamed. "You don't 
have to wear a conical hat with the sign of the zodiac on it in order 
to make these chips nowadays. It's not quite as simple as going to a 
hardware store and picking up a bag of nails of different sizes, but 
we are not far from that." He further charges that Atari Games 
contacted Sharp, the Japanese electronics company, which said 
that chips were available— until Sharp learned they were to be 
used for Nintendo-compatible games. Then Sharp recanted; there 
were no chips after all. 

Acclaim, however, did find chips that NCL approved, although 
not until 1989, according to Greg Fischbach. Nintendo insisted 
that the chips most other companies found were of inferior quality. 
Yamauchi and Arakawa refused to accept them, insisting that they 
were more concerned about the long-term integrity of products 
with the Nintendo quality seal than the short-term profits of licen- 



246 GAME OVER 



sees. "From our point of view, we gave everything we could," 
Lincoln says. "People were going to have to make millions, not 
zillions." 

"It really set us off," Wood says. "We knew then that we were 
being jerked around." 

Van Elderen was incensed. "Frankly, the historical roots of this 
company are Atari. Atari!" he says. "We created this industry eigh- 
teen years ago, and we weren't going to be told by anyone that we 
couldn't play at our own game." 

"We didn't know what was going to happen," Wood admits, 
"only that Nintendo could literally strangle us with a silk scarf." 
Van Elderen says his company was backed into a corner. "It be- 
came obvious that we had to make some different arrangements, 
and that's when we decided to work around Nintendo." 

In fact, the Atari Games/Tengen chiefs had decided long before 
to work around Nintendo. The efforts, begun even before the chip 
shortage, were kept secret for almost a year, Van Elderen admits, 
even though Atari Games continued to work with NOA as if every- 
thing were "all sweetness and light," as Howard Lincoln puts it. 

In August 1988, Hide Nakajima and Randy Broweleit met 
Arakawa and Lincoln in the Donkey Kong conference room to 
discuss the strategy for selling Tengen's three initial games. Then 
the representatives of the two companies played golf at Arakawa's 
club, and the Arakawas gave the fateful dinner party for Nakajima 
and Broweleit at their new home in Medina. 

The dinner progressed, but something odd was in the air. When 
Howard Lincoln accompanied Yoko Arakawa to the kitchen to 
help with drinks, she whispered to him, "What's going on with 
these guys?" 

"We couldn't put our finger on it," Lincoln says. 

Apparently oblivious, Arakawa, who had had a couple of glasses 
of wine, fell asleep when the gathering moved outside after dinner. 
Even though he awoke in time to say good night to his guests, 
Nakajima viewed the Nintendo president differently. Everyone 
pretended that nothing had happened, but something was deeply 
wrong. 

In October Nakajima called to invite the Arakawas to play golf 
at Pebble Beach. There were only subtle hints that anything was 



THE BIG SLEEP 



amiss. Nakajima was chatty and amiable, but amidst the social- 
izing, he asked Arakawa more questions about Nintendo's busi- 
ness. Arakawa was wary, but he answered them because he was 
trying to make up for the dinner party. 

Back in 1986 Dennis Wood had had attorneys go over Nin- 
tendo's licensing agreement to determine if there was a legal way 
Tengen could produce and sell games that would play on the NES 
without going through Nintendo. The lawyers deduced that Tengen 
could do so if there was no infringement on Nintendo's patents or 
copyrights. This meant that Tengen would have to come up with its 
own chip that defeated the security system— that is, Tengen would 
have to unlock the lock-out chip. 

On the assumption that customers wouldn't care whether or not 
Tengen was a Nintendo licensee, that stores just wanted product, 
and that customers would buy good games regardless of the Nin- 
tendo quality seal, Nakajima had a group of engineers analyze the 
Nintendo security system. They found that the security chips in the 
hardware and software were identical chips that, basically, commu- 
nicated with each other. As long as they were communicating, the 
system operated; if they weren't, the system froze up. The engi- 
neers then tried but failed in their efforts to replicate the technol- 
ogy. Atari engineer Pat McCarthey concluded, "Unless there is a 
specific profit motivation . . . I recommend that the investigation 
end here." There was, the court would later find, a profit motiva- 
tion, and Atari did not discontinue the project. 

Atari had outside engineers try to reverse-engineer the chip — 
that is, "deprocess" it. Engineer Donald Paauw was assigned the 
task of analyzing "peeled" or dissected chips in an effort to under- 
stand the program embedded within, but he did not succeed. Fi- 
nally, after the engineers failed to figure out the chip by reverse 
engineering, they were given some help. 

Nintendo's security system was the subject of two protected in- 
tellectual properties. NOA had filed for a patent on the lock-and- 
key system itself in 1985— number 4,799,635, entitled "System for 
Determining Authenticity of an External Memory Used in an In- 
formation Processing Apparatus." 
The other piece of intellectual property that Nintendo protected 



GAME OVER 



was the song the security chips "sang," the computer code, which 
was known as the 10NES and was registered at the U.S. Copyright 
Office. Copyright protects original works — songs, literary works, 
computer programs — as opposed to inventions or formulas, which 
are covered by the Patent Office. Initially Nintendo had no plans to 
register the copyright because the code itself would have to be 
placed in the Copyright Office's unpublished-works storage facil- 
ity, in Landover, Maryland, but an attorney specializing in copy- 
right law advised Howard Lincoln that the code would be secure 
Although individuals could examine files in the Copyright Office, 
no one was allowed to remove anything; even note-taking was. 
prohibited. Reassured, Lincoln decided to submit the program, so 
the entire computer-generated code, indecipherable incantations 
to anyone who didn't speak computer language, was locked away 
in a file inside a storage vault in Landover, Maryland. 

There was, in fact, one legitimate way for someone to get access 
to a copyrighted code. An affidavit could be filed indicating that 
the work was the subject of litigation. With the affidavit, a copy of a 
work could legally be removed from the office. The odd logic went 
like this: a company being sued for violating a copyright couldn't 
defend itself unless it could review the copyrighted material. It was 
explicitly stated that no one was allowed to use the material for any 
purpose other than this. 

Atari Games hired a local Virginia law firm to get the code. The 
firm may have believed that the request was legitimate, for it had 
been told that Nintendo had sued Atari Games. Ten days after 
Atari Games signed its agreement with Nintendo, on January 28, 
an employee of the law firm filed an affidavit in the U.S. Copyright 
Office. The affidavit, filed on behalf of the Virginia firm's client, 
Atari Games, indicated that a copy of the code was required for 
pending proceedings under way in U.S. District Court, in the 
Northern District of California. The form indicated that the pro- 
gram was "to be used only in connection with the specified litiga- 
tion." 

The code was sent over from the Landover storage facility to the 
Copyright Office. An employee of the law firm headed up to room 
402 and waltzed out with a copy of the 10NES copyright in his 
briefcase. 



THE BIG SLEEP 2 4 3 



No suit had been filed against Atari, and none would be filed 
until November 1989, almost two years later. Atari would later 
defend the action by claiming that litigation was imminent at the 
time, but the judge who would preside over the lawsuit refused this 
defense. The court said, "Atari's purpose in obtaining the program 
in early 1988 was commercial rather than legal." Tengen's Van 
Elderen later told reporters that his team had succeeded in repro- 
ducing the lock-out chip by the process of reverse engineering- 
unraveling the design— when, in fact, they had taken it from the 
copyright documents. 

Tengen's Silicon Valley R&D division was in a series of back 
offices of the Atari Games building, which was set atop what had 
once been an orchard of prune trees. There a team of engineers 
pored over the illegally obtained code and worked to create their 
clone chip. By comparing the information obtained from the Copy- 
right Office with copies of the binary code read through micro- 
scopic examination of "peeled" chips, the engineers were able to 
correct and verify their version of the program. 

With the documents in hand, the Atari engineers had only a 
slightly more difficult time making an exact copy of the Nintendo 
security system than they would have had, say, assembling a bicycle 
that came with clear instructions. Atari engineers re-created the 
Nintendo chip with the embedded incantation that allowed it to 
sing to the chip inside the NES, and dubbed their version the 
Rabbit. Installing a prototype Rabbit into a game, they plugged it 
into an NES system, and pushed the power button to fire it up. 
Immediately the TV monitor lit up with the Tengen logo, and by 
August 1988, when Hide Nakajima was at dinner at the Arakawa 
home in Medina, Atari Games was producing cartridges on its own 
that incorporated the Rabbit. 

At the end of the year, on December 12, Atari Games filed suit 
against Nintendo in U.S. District Court in San Francisco. Essen- 
tially the suit claimed that Nintendo was succeeding at the expense 
of all potential competitors by means of monopolistic and exclu- 
sionary business practices. "Through the use of a technologically 
sophisticated lock-out system' . . . Nintendo has, for the past 
several years, prevented all would-be competitors, including Atari, 
from competing with it in the manufacture of video-game car- 



250 GAME OVER 



tridges compatible with the Nintendo home video-game machine," 
the document charged. "The sole purpose of the lock-out system is 
to lock out competition." The suit further claimed that the lock- 
out chip and Nintendo's monopoly of the industry interfered with 
competitive pricing, allowing Nintendo to control the supply and 
prices of cartridges available to consumers. "The impact of Nin- 
tendo's conduct has been to block any competition in the manufac- 
turing market for video-game cartridges compatible with the 
Nintendo machine," the suit stated. 

In the complaint, Atari Games announced that it had developed 
the functional equivalent of a key to "unlock the lock-out system," 
and said it was beginning to compete with Nintendo. 

In early December 1988, Nintendo held its grandest Christmas 
party ever. There were tables of freshly carved roast beef and 
turkey, and bowls of spiked punch and endless champagne. Em- 
ployees and their spouses danced to the music of a big band. The 
following morning, when the staff was suffering a collective hang- 
over, one of the company's public relations people called Howard 
Lincoln. "You're not going to believe this," he told Lincoln, "but 
there's something coming over the wire that you ought to know 
about. Tengen is having a press conference and is announcing that 
they reverse-engineered your security chips and are going to start 
making games for the NES without a license. They've filed a law- 
suit for $100 million against you for violation of the antitrust laws." 

In the press release, Atari Games' Dennis Wood took the offen- 
sive. "Who gave Arakawa, Lincoln, and Main the power to decide 
what software the American public can buy?" he asked. 

Arakawa, whose hangover put Lincoln's to shame, heard from 
his partner. "Guess what those sons of bitches did," Lincoln said. 
The two of them remembered the golf game at Pebble Beach, the 
dinners— all the times Nakajima had pumped them for details 
about the Nintendo business— and all of the information they had 
stupidly provided. "We'd been scammed," Lincoln says. 

Faxes flew back and forth across the Pacific Ocean. When he was 
told, Yamauchi said he wanted Atari stopped, whatever it took. 

Arakawa, Lincoln, and Peter Main met to decide how to re- 
spond. They agreed that an immediate response was critical; if they 



THE BIG SLEEP 25 1 



could stop retailers from selling Tengen's games and simultane- 
ously go after it for violating the agreement, Nintendo would suffer 
little damage. They also concurred that they had to learn how 
Atari had broken the security system. Later, when they did, Lin- 
coln said, "They entered into a contracting relationship with us 
knowing they were going to screw us. They were trying to reverse- 
engineer from the start and they were getting nowhere. They aban- 
doned the reverse-engineering project and all of a sudden our 
source code pops up. Bang. There is a lot more to this." 

The morning of the Atari Games press conference, Nakajima 
called Arakawa. He said, "I guess you heard what's going on." He 
said he wanted to talk in person. "We expected to be sued," 
Nakajima said afterward, "but I thought I might be able to settle 
things before they escalated." When the two men met at the Seat- 
tle-Tacoma airport the following day, Arakawa held back his anger 
in order to hear what Nakajima had to say. 

Nakajima seemed tense and awkward. He told Arakawa he was 
against the tactic his company had used. He blamed others at Atari 
Games and said that it would not have gone this far if Nintendo 
had been more flexible. "Let us do our own manufacturing," 
Nakajima said. He indicated that he was still open to being a 
licensee if Nintendo would give in, and that Atari Games would 
withdraw its lawsuit. Arakawa walked away. 

After the meeting, Arakawa reported to Lincoln what Nakajima 
had said. Lincoln shook his head. "Now I understand the look on 
Nakajima's face when you fell asleep [at the dinner party]. The 
contempt/' he told Arakawa. He said Nakajima thought he was the 
stronger man, and that he saw Arakawa as nothing more than 
the vain and disrespectful son-in-law of Hiroshi Yamauchi. Lincoln 
now says, "I thought to myself, you have no idea what you have 
taken on: a tiger who will skin you piece by piece." 

A battle for hundreds of millions of dollars ensued. Tengen tried 
to sell its games — notably lacking the Nintendo quality seal — and 
NOA pulled out all stops in its attempt to stop it. Posing as a David 
against the Goliath of Nintendo, Tengen fought viciously. 

Nintendo filed a twofold countersuit almost immediately, charg- 



GAME OVER 



ing Atari Games with "the fraudulent inducement" of Nintendo to 
enter into the licensing agreement and with the sale of unautho- 
rized and unsupported games. It claimed that Atari Games vio- 
lated the Racketeer Influenced and Corrupt Organization Act 
(RICO) by creating Tengen as a front company in order to defraud 
Nintendo. In good faith NOA had given substantial marketing and 
technical support for the Tengen NES cartridges. Then, the com- 
plaint continued, "having achieved its goal of strong public identi- 
fication with the games and packaging with Nintendo, beginning 
sometime in late December [1988] or early January, Tengen com- 
menced selling unauthorized versions of these same games." 

Part of Nintendo's lawsuit claimed that Atari Games, needing 
more than the security system in order to go after Nintendo's 
market, had also had to learn how the Nintendo business worked. 
Because Atari Games had a Nintendo license, it was given all the 
information the other licensees had, but because of Nakajima's 
personal relationship with Arakawa, Atari Games was also given 
detailed information about retailers. As a licensee, it had no trou- 
ble acquiring distribution. As a result, Tengen's Nintendo business 
grew to about $40 million a year for Atari Games — although, says 
Dennis Wood, unimpeded by Nintendo it would have been hun- 
dreds of millions of dollars a year. 

The press saw larger ramifications in this litigation. "A verdict 
against Nintendo might prohibit the company's use of the lock-out 
chip in its control decks, creating opportunities for any indepen- 
dent software developer who wished to design games for use on 
the Nintendo machine," said an article in The New York Times in 
March 1989. "A verdict in favor of Nintendo would probably have 
a spillover effect into the personal-computer industry, where it 
could have a chilling effect on the free flow of ideas and innova- 
tions that have characterized that market since its inception." 

The lawsuit was only the start of Nintendo's effort to fight 
Tengen. Nakajima was informed that his company would not be 
allowed into the massive Nintendo booth at the January 1989 Con- 
sumer Electronics Show. Nintendo had its largest presence yet at 
this show: its "booth" was a 40,000-square-foot, black, high-tech 
structure that passersby called the Death Star. Inside were lavish 



TH E BIG SLEEP 



displays by Nintendo and its licensees. It was as if the Death Star 
housed the legions of Nintendo loyalists while, outside the gates, 
the infidels — Tengen and other Nintendo competitors— were 
poised in ramshackle encampments. 

Nintendo executives also decided to tighten the screws on 
Tengen by going directly to retailers, sending them a letter in which 
NOA threatened to sue any company carrying Tengen games. On 
behalf of Nintendo, John Kirby wrote Charles Lazarus, chairman 
and CEO of Toys "R" Us, on January 24, 1989, "If your company 
handles products which infringe Nintendo's patent or other intel- 
lectual property rights, Nintendo intends to avail itself of the full 
range of its legal remedies." When he did not hear from Lazarus 
immediately, Kirby wrote again six days later. Toys "R" Us had to 
"cease and desist" its sale of Tengen cartridges and reply by Febru- 
ary 1. An attorney for Lazarus wrote back that the company would 
comply. An article in The American Lawyer in April 1990 reported 
that Kirby faxed back still another letter. "I understand from your 
letter that Toys is immediately removing the product from the 
shelves in all its stores. . . ." it read. "It is vitally important that 
this be confirmed to me immediately. I will call you at 4 p.m. today 
... to confirm this fact. Needless to say, we have had investiga- 
tors purchasing the product at various Toys 'R' Us stores and they 
are being instructed to return to those stores at 5 p.m. today." 

Atari Games sought and won a preliminary injunction to stop 
Nintendo from threatening dealers, but the decision was reversed 
on appeal. Either way, Nintendo had made its point, and it contin- 
ued its campaign of intimidation. Some of it was carried on in 
court, some of it by less overt means. "Companies would not carry 
our games because there was pressure from Nintendo which could 
jeopardize their business," Nakajima says. "Even the big compa- 
nies like Toys 'R' Us couldn't stand up to them." Dan Van Elderen 
claims the intimidation was subtle but effective. A Nintendo rep 
would say quietly, "You know, we really like to support those who 
support Nintendo, and we're not real happy that you're carrying a 
Tengen product." Then, after a pause: "By the way, why don't we 
sit down and talk about product allocations for next quarter? How 
many 'Super Marios' did you say you wanted?" Van Elderen says 



GAME OVER 



he had distribution in the top fifteen retailers in the country before 
these threats, but that every one of them subsequently dropped 
Tengen. 

It was certainly true that few retailers would risk Nintendo's 
threat of a lawsuit against them. Beyond that, retailers were be- 
holden to Nintendo for the steady supply of product, which in 
some cases represented their entire profit margin. If NOA held 
back supply of a hot game, customers would flock to competitors 
across town, or even in other towns. No company had ever been in 
this position, which meant that none had ever had such clout. 
Despite repeated denials, Nintendo exercised it without much deli- 
cacy, even when the court enjoined it from suing retailers while the 
suit with Atari Games was pending. "If a retailer carried Tengen 
games, their Nintendo allocations would suddenly disappear," a 
representative of one retailer charged. "Since it was illegal, there 
were always excuses: the truck got lost, or the ship from Japan 
never arrived." 

The upshot of real or imagined intimidation was that Toys "R" 
Us, Bradlees, Target, Wal-Mart, and most other large retailers re- 
fused to carry Tengen's or any other unauthorized games. Since 
retailers wouldn't carry them, it was pointless for companies to 
make them. Nintendo had made its point. The head of one soft- 
ware firm told The American Lawyer that he had been "at numer- 
ous meetings of conspirators" who wanted to get around 
Nintendo's system and that they all "chickened out." The reason: 
"You don't fuck with a nine-hundred-pound gorilla." 

Al Chaikin, CEO of Circus World Toys, with 328 stores across 
the country, who admitted that Nintendo was "the most sought- 
after product in the business today," also revealed how the com- 
pany worked. Tengen's games were popular, he told the court in a 
deposition in 1990, and he felt that they were good products. He 
nonetheless succumbed to pressure when Nintendo threatened to 
sue companies that carried the games. After receiving a threaten- 
ing letter, Chaikin responded to John Kirby in a letter he sent in 
June 1990: "Your threats to take action against us before Nin- 
tendo's dispute with Atari Games can be decided by the Court 
leaves us no choice but to discontinue carrying Tengen cartridges. 
... To that end, and to insure uninterrupted supply of Nintendo 



THE BIG SLEEP 255 



products to us in the ordinary course of business, we are discontin- 
uing our purchase of Tengen cartridges. Inventory already on store 
shelves will not be replenished." 

Kirby was not placated, writing back to Chaikin's attorney: "I am 
very pleased that Mr. Chaikin has consulted with counsel with 
respect to my letter. . . . However, both my client and I find the 
tone and substance of his response thoroughly inappropriate. . . . 
I do not accept his statements which indicate that he intends to 
respect these rights in the future only to please Nintendo rather 
than as an acknowledgement of the legal rights of Nintendo as to 
which you and he have apparently made a decision." 

Chaikin felt the squeeze in a way that threatened his entire 
operation. In the deposition, he charged that Nintendo had 
changed its credit terms with Circus World because he carried 
Tengen games. Nintendo had previously allowed Circus World 
Toys credit, but then changed to cash in advance. An attorney for 
Atari Games asked him, "[Then] was there a time when you ceased 
dealing with Tengen products, and shortly thereafter Nintendo af- 
forded Circus World better credit terms?" 

Chaikin responded, "Yes, there was." 

Stuart Kessler, a vice-president for the Ames department stores, 
was also deposed by Atari Games. Ames (and its Zayre division), 
with 461 retail outlets, had been doing about $10 million a year in 
Nintendo business. In a letter, after NOA threatened Ames for 
carrying Tengen games, Kessler wrote to Howard Lincoln: "We 
value our relationship with Nintendo and would do nothing to 
jeopardize our future together." 

Lincoln had written to another Ames vice-president, Earl M. 
Spector: "Ames has known for more than one year that Nintendo 
considers the sale of unlicensed Tengen video game cartridges for 
play on the Nintendo Entertainment System to be a violation of its 
patent rights. Ames has continued to sell Tengen cartridges in 
blatant disregard of Nintendo's rights. In light of Ames' decision to 
sell infringing cartridges, Nintendo has decided that it will cease 
doing any business with Ames. Henceforth, any purchase orders 
submitted by Ames will be rejected." The letter was signed by 
Lincoln, "Very truly yours . . ." 

Ames was cut off in August 1989. 



256 GAME OVER 

Meanwhile, in preliminary hearings of the lawsuits, Atari main- 
tained that the code it had received from the Copyright Office had 
nothing to do with its ability to reverse-engineer the security sys- 
tem. The judge — Fern Smith, of the U.S. District Court for the 
Northern District of California in San Francisco — refused to be- 
lieve this. In a strong opinion she wrote in March 1991, when 
granting Nintendo's request for a preliminary injunction against 
Atari, she lambasted Atari for thievery. Her conclusion was made 
after she compared the source code that Atari's engineers suppos- 
edly arrived at with Nintendo's code as received from the Copy- 
right Office. They were almost identical. Atari's Rabbit code 
included far more information than was necessary to make the 
chip work. Had Atari actually created it independently, there 
would almost certainly have been more variation. 

Atari Games had hurt itself, perhaps irreparably, by securing the 
code from the Copyright Office under false pretenses. "Atari lied 
to the Copyright Office in order to obtain the copyrighted 10NES 
program," Judge Smith wrote. "The court disapproves of Atari's 
argument that Nintendo's subsequent claims of infringement ret- 
roactively justify dishonesty. ..." 

In the conclusion of her opinion, Judge Smith prohibited Atari 
from copying, selling, or using Nintendo's copyrighted computer 
program in any way. She ordered Atari to halt marketing, distrib- 
uting, or selling its NES-compatible cartridges, and to recall all its 
product in stores. Although it was far from the end of the litiga- 
tion, the court also indicated that Nintendo had the right to "ex- 
clude others and reserve to itself, if it chooses," the right to sell 
game cartridges. The entire industry watched the decision spell- 
bound, viewing it as a body blow to competitors who had hoped to 
challenge Nintendo. 

In early 1989 Atari Games filed a countersuit to Nintendo's 
countersuit, this one accusing NOA of infringing on one of its 
patents. "Nintendo built its business on borrowed technology," 
Dan Van Elderen says. The original Atari had patents on all kinds 
of devices in all video-game systems — motion technologies and 
circuitry, for example. Although the company had never pursued 
the myriad companies that had built systems based on those tech- 



THE BIG SLEEP 2 5 7 

nologies, it now tried everything it could against Nintendo. "The 
first time we hauled the patents out as a weapon was with Nin- 
tendo," Van Elderen admits. 

Atari Games was not alone in suing Nintendo for patent in- 
fringements. Magnavox, which had patents from its early research 
in video games, charged Nintendo with infringing a patent that had 
to do with on-screen game play (the technology that caused the 
caroming of balls or bullets off walls or enemies). Another com- 
pany, Alpex Computer, sued over infringement of a patent related 
to the relationship between video-game microprocessors, memory 
chips, and the television screen; and an inventor named Jan Coyle 
sued for infringement of his patent on technology behind the 
NES's color encoding. Nintendo settled with Magnavox and Coyle. 
Alpex claimed that Nintendo was using its patented technology in 
its system and in more than 150 games. This suit, unresolved 
through 1992, could prove expensive for Nintendo. The Atari 
Games suit, however, could cost Nintendo even more and set a 
precedent because its ability to control software for the NES was at 
stake. 

Howard Lincoln's adversary at Atari Games, Dennis Wood, 
planned obsessively the many fronts of his attack. He sat in his 
office sipping the kukicha poured by his assistant, June Yamamoto, 
lifting the fragile porcelain cup to his lips and blowing across the 
hot liquid. "We will not give up," he said, even though, as he 
admitted, "they keep hitting us every time we stand up." 

Another significant case was brought against Nintendo by Jack 
Tramiel and his son, Sam, respectively the chairman and president 
of Atari Corp. The Tramiels sued Nintendo for $160 million for 
violation of antitrust laws. As a hardware manufacturer (it released 
follow-up systems to the 2600 that never caught on, as well as a 
hand-held video-game system), Atari Corp. claimed that the Nin- 
tendo licensing agreement preventing licensees from releasing 
Nintendo games on competing systems for two years amounted to 
unfair restraint of trade. Because of that clause in this agreement, 
the Tramiels couldn't get good games. 

Howard Lincoln told the press he considered the suit "meritless, 
simply an attempt to excuse Atari's poor competitive performance 



GAME OVER 



in the marketplace," and added that he relished the opportunity to 
go to court with the case. "Our defense is really simple," he said. 
"We are going to put Sam Tramiel on the stand and he is going to 
explain how, in 1985, he had 100 percent of the market for home 
video games, and [that] the home video-game business was synony- 
mous with Atari and no one had ever heard of Nintendo. And then 
we're going to demonstrate how, through his own ineptness and 
idiocy and mismanagement, he took that franchise and shot it in 
the foot and killed it. We'll show how he was quite successful in 
doing it and literally went from owning 100 percent of the markei: 
to no market share. I think we will do fine." 

Atari Corp.'s contention was essentially the same as that of Atan 
Games, only in reverse. The two-year limitation hurt Atari Corp 
because Nintendo licensees' best games were tied up, and it hurl: 
the licensees because it limited their market. Those were two years 
that software companies lost the ability to profit by selling their 
games for other systems. 

The implications of the two suits were enormous. Dan Van 
Elderen said, "If Nintendo loses on that key argument, they have a. 
huge liability — almost overwhelming. All the licensees could have 
been unfairly restricted by Nintendo." The Atari Corp. suit, the 
first to come to trial, could cost Nintendo almost half a billion 
dollars (damages are tripled in this kind of antitrust case). Other 
companies could also jump on the bandwagon and sue. Atari 
Games' case would be even costlier, and the nine-hundred-pound 
gorilla could be brought to its knees. 

Arakawa was called by Atari Corp. lawyers into Judge Smith's, 
San Francisco courthouse. Wearing a double-breasted navy-blue 
suit, he leaned forward on the stand, listening carefully to the 
questions. "Isn't it a fact that if Atari or Sega was also being 
carried, the salesman would go in and say they won't be able to 
carry Nintendo?" the attorney asked. 

In a voice decibels lower than the lawyer's, Arakawa answered. 
"Definitely not." 

The lawyer asked, "Did Nintendo ever tell any licensee that they 
could only make games for Nintendo?" 

"No." 



THE BIG SLEEP 259 

"Did Nintendo ever tell them, the licensees, that if they put 
games on any other system they would be penalized?" 

"No." 

"That Nintendo would reduce their allocation of chips during 
the chip shortage?" 

"No." 

"Cancel trade-show space?" 

"No." 

"Any threats to prevent them from making games for other 
home video-game systems?" 

"No." 

The court cases slogged along. Nintendo's business was "video 
games and litigation," said an employee. In the middle of a dead- 
line for a new issue of Nintendo Power, Gail Tilden was handed 
another weighty stack of papers by a member of Howard Lincoln's 
staff of lawyers. She shrugged. "We spend a lot of time doing 
depositions these days." Arakawa noted that Nintendo's legal bills 
($20 million a year by 1990), although a significant amount of 
money, were nothing when compared to total sales. "Nintendo 
made a billion dollars this year," Hide Nakajima said in 1991. 
"They can spend all the time and money it takes to destroy us." On 
the other hand, Dennis Wood claimed that the Nintendo cases 
could have broken Atari Games, and Nakajima concurred. In the 
meantime Atari Games pleaded with the judge for a stay of her 
ruling that forbade it to sell its games. The ruling was destroying 
the company. On April 11, 1991, the judge agreed to allow Tengen 
to sell its games pending the outcome of an appeal. A year later, in 
September 1992, Tengen lost the appeal and had to recall all its 
games that played on the NES. The judge meanwhile set a date for 
the trial of Nintendo's litigation against Atari Games in May 1993. 

Howard Lincoln never believed Nakajima's contention that he 
was fighting Nintendo on his own. "There's no question in my 
mind who's running the litigation against us," he alleged. "It's not 
Nakajima at Atari Games, and it isn't Jack and Sam Ttetmiel at 
Atari Corp., who are just on the bandwagon like vultures looking 
for scraps. It's got to be Steve Ross at Time Warner. He wants to 



2BO GAME OVER 



be back in the video-game business and he sees this as a tremen- 
dous opportunity to make some money. He has nothing to lose and 
everything to gain. We keep beating the hell out of them, and they 
keep hemorrhaging money. Why are they doing this?" 

Time Warner's large interest in both Ataris lends weight to Lin- 
coln's assertion, though Ross refuses to comment. An Atari Games 
spokesman repeatedly denied that deep pockets were fueling the 
lawsuit, but Manny Gerard, Ross's old Warner buddy, quoted a 
senior Warner executive as saying, "The biggest asset to come out 
of the Atari experience for Warner may lie in the Atari Games- 
Nintendo lawsuit." Gerard says, "For Steve, a significant percent- 
age of a jillion dollars would be a nice consolation prize. At least 
he would have gotten something for the Atari nightmare." 

The two Atari cases inched along. Months of discovery turned 
into years, with motion after motion, countless status conferences, 
and tons — literally — of depositions. Meanwhile, the clock ticked 
on Nintendo's invulnerability. It had made too many enemies to 
survive all these attacks unscathed. 



\ 



12 



GAME OVER 



* 



warning: Your child may be addicted to a product pushed by a criminal 
racketeering enterprise. Kids as young as five have even given up TV for their 
habit, hooked by assertive characters named Mario and Luigi. 

The alleged criminal enterprise is Nintendo. ... If the legal accusation of 
toymaker as mobster is surprising, perhaps all is explained by the fact that 
Nintendo is a Japanese company whose success comes at the expense of an 
American former market leader. 

— L. Gordon Crovitz, 
The Wall Street Journal 



When Nintendo's competitors failed in the marketplace, they not 
only turned to the courts, but also went to legislators with their 
accusations that the company was perpetuating an illegal monop- 
oly that not only deprived American companies of their right to do 
business but, in the process, added billions of dollars to the existing 
trade deficit with Japan. 

Atari Games' Hide Nakajima and Dennis Wood had found Nin- 
tendo's Achilles' heel, and they took aim at it: Nintendo was a 
Japanese company enjoying extraordinary success in America at a 
time when Japanese companies were the object of American dis- 
trust and hostility. Soon members of Congress, the Justice Depart- 
ment, and the Federal T3*ade Commission would all have their 
sights set on Nintendo. Nakajima, himself Japanese, may not have 
set out to place Nintendo in the front line of the trade war, but he 
did. Apparently all was fair in the video-game wars. 

Slowly Americans began to notice that the game was over. The 



262 GAME OVER 



Japanese had already landed. Disguised as a video-game system, 
the invaders had been carried into America's living rooms by chil- 
dren. The growing video-game business — worth in the neighbor- 
hood of $5.5 billion by 1992 — was owned by Nintendo and a few 
smaller competitors, all of them Japanese. In the United States, 
people were finally beginning to ask, "Where are the American 
companies?" 

As legislators realized that Nintendo was expanding its opera- 
tions in America and seeking broader markets — markets that cor- 
porations such as Apple and IBM had assumed were theirs — 
Capitol Hill's interest began to heat up. Congressmen, meeting in 
closed-door sessions (which they followed with melodramatic press 
conferences) would soon portray the Nintendo system, this time 
without flattery, as a modern-day Trojan Horse — a computer hid- 
den inside a toy with greater dependence on Japan and a larger 
trade deficit lurking within. In the media poised to jump on the 
bandwagon, Nintendo would become one of the worst perpetra- 
tors of the Japanese devastation of the American economy. The 
repercussions were manifold. 

In early 1992, Hiroshi Yamauchi, previously unknown to the 
American public despite Nintendo's prominence, would land on 
the front pages of newspapers when it was announced that he was 
buying Seattle's major league baseball team, the Mariners. Unfor- 
tunately, Yamauchi's offer was announced in the same week that a 
Japanese legislator publicly made the indelicate suggestion that 
American workers were lazy. On the heels of this highly publicized 
slur, the Yamauchi-Mariners deal was the final straw: "They" had 
the audacity to attempt to buy a piece of American baseball, far 
dearer in the hearts of its citizens than Rockefeller Center. 

Nintendo would become a tennis ball in the election-year face- 
off between the United States and Japan, with epithets volleying 
back and forth. Meanwhile, baseball commissioner Fay Vincent 
would argue that we had to keep something sacred, out of the grips 
of Japan — all this despite the fact that Seattle city fathers had 
solicited Yamauchi's bid in a desperate attempt to keep the team 
in town. Nintendo hardly needed the attention. It was already a 
target on Capitol Hill, in the offices of state attorneys general, and 



GAME OVER EB3 



in the press. The inquiries that had begun into its business prac- 
tices would, at the least, cost Nintendo some money. They might 
also, in the words of one investigator, "make it very unpopular to 
be associated with Nintendo in this country." 

This counteroffensive against Nintendo began in 1989, when the 
Atari Games executives went to Washington and were greeted by 
the sympathetic ear of the chairman of a congressional subcommit- 
tee on antitrust, Representative Dennis Eckart, a Democrat from 
Ohio. Dan Van Elderen insists that the investigation on Nintendo 
was under way before Atari Games got involved, and Eckart cor- 
roborates the claim, saying that it was a response to complaints 
from consumers about Nintendo's high prices and short supplies, 
as well as his own observations about the video-game market. 
Howard Lincoln counters that Atari Games appealed to its local 
congressman, Tom Campbell, who happened to be on Eckart's 
subcommittee. A Campbell staffer confirms that Atari Games ap- 
proached Campbell. In any event, Eckart set out to build a case 
against Nintendo. 

Atari Games executives Van Elderen and Wood were star wit- 
nesses in the congressional investigation. Eckart also questioned 
dozens of others, many of them off-the-record informants who 
feared reprisals by Nintendo. If the congressman hadn't been con- 
vinced by Atari, the investigation confirmed for him that Nintendo 
was a huge, monopolistic demon. 

Eckart accused Nintendo of antitrust activities related to the 
security system and the licensing agreements with software devel- 
opers — what Atari Games called "anticompetitive conduct in the 
retail market." Eckart further charged that it was illegal (as tested 
in an IBM case from 1969) for a hardware company to restrict 
software companies from creating products for its machine. He 
attacked Nintendo's practice of "bundling" hardware with the soft- 
ware needed to make it work, and he claimed that its powerful 
position vis-a-vis retailers and competitors had enabled it to hike 
up prices by 20 to 30 percent, particularly during the preceding 
Christmas shopping season. Therefore the public was paying exces- 
sive prices because of NOA's monopoly. 

Howard Lincoln first heard about the investigation when it was 



GAME OVER 



nearly over. He was at a cocktail party in Toronto in October 1989 
when the head of the Software Publishers Association asked if he 
knew that his company was under investigation by Congress. 

Two weeks later Lincoln was in Washington to meet with Nin- 
tendo's lobbyist, Don Massey, senior vice-president in the govern- 
ment-relations division of the firm Hill & Knowlton. (Nintendo 
had hired the lobbyist to push legislation through the Senate that 
would outlaw the rental of video games.) Lincoln asked Massey to 
find out what was up. 

The following week Massey reported that there hadn't yet been 
hearings, but that boxes full of evidence had been gathered, and as 
many as sixty-five interviews had been conducted. It was ominous 
that Nintendo hadn't been contacted; it suggested that a lynching 
was in the making. 

Lincoln asked Massey to request that Nintendo be given the 
opportunity to be heard. Hearing dates were set up and canceled 
twice, and Lincoln publicly charged that Nintendo was being 
blocked from testifying. Eckart responded by scheduling a hearing 
for December 4. However, that hearing was canceled too, and a 
few days later, Massey called Lincoln to report that the committee 
was issuing a report without a hearing, and that a press conference 
had been called for the next day. 

"What?" Lincoln barked. "How can they have an investigation 
without hearing our side of the story?" He told Massey he would 
call the committee's counsel himself. 

Lincoln could hardly restrain his fury. "Look, I don't know what 
is going on here, but this is not fair. At least hear our side of the 
story before you go and make an announcement." 

The committee's attorney told him that the investigation was 
completed, and that there was nothing to be done; Nintendo's 
position had been represented by Massey. Lincoln snapped, "My 
lobbyist does not know my business! No one talked to me." He 
demanded to talk to Eckart. 

When the congressman got on the line, he coolly repeated that 
the investigation was over. 

"Come on," Lincoln said, beginning to boil over. "Give me a 
break here. You haven't heard our side of the story; you never 
received any materials from us." When Eckart refused to budge, 



GAME OVER 265 

Lincoln lit into him. "You have this press conference set up for 
tomorrow; you know what that date is as well as I do." 

Eckart said he didn't. 

"Tomorrow is December the seventh, Congressman." 

Eckart tried to calm him. "It's going to be a real low-key press 
conference," he said. 

Lincoln stopped trying to contain himself. "I wasn't born falling 
off a hay truck," he fumed. "You're trying to screw us." 

Eckart said, "I'm sorry you feel that way." 

Lincoln angrily tried again. "Come on," he said, "let's not have a 
circus." 

"But the tent was on its way up," wrote L. Gordon Crovitz in a 
biting piece in The Wall Street Journal Eckart held the news confer- 
ence, as scheduled, on December 7, Pearl Harbor Day. 

"Coincidence?" Crovitz asked. He quoted Howard Lincoln: " 'A 
lot of strange things happen back there in Washington, but at least 
they usually give the appearance of fairness.' " Crovitz continued: 
"[Lincoln] called Eckart a liar for saying Nintendo had its chance 
to be heard and he dismissed the congressman's antitrust allega- 
tions as 'grandstanding.' " 

Crovitz's piece recounted the issues in the Atari Games-Nin- 
tendo lawsuit. "About fifty software firms, many of them Ameri- 
can, have made fortunes under this system. But Atari Games and 
its subsidiary, Tengen, which was a Nintendo licensee, were not 
satisfied with this arrangement." In conclusion, Crovitz charged, 
"There is something wrong with a legal and political system whose 
vague laws strongly encourage competitors to seek market share 
outside the marketplace. . . . Nintendo competitors could better 
spend the time they devoted to huddling with lawyers and congres- 
sional staffers to dreaming up the next Mario and Luigi instead." 

With Christmas a couple of weeks away and Congress out of 
session, there was little else for Capitol Hill reporters to do but 
flock to Eckart's press conference, at which the congressman an- 
nounced that he was recommending an investigation of Nintendo 
by the Justice Department. When Lincoln got a taped copy of the 
press conference, he exploded. "Holy Christ! This guy had more 
microphones in front of him then Roosevelt did when he declared 
war on Japan. He went on about everything from resale price 



266 GAME OVER 



maintenance to our treatment of Tengen. Basically it was a story 
Tengen would have written. It was a disaster." 

Tengen, on the other hand, celebrated. "Nintendo's behavior in 
the United States is so atrocious that it requires the action of the 
Department of Justice to restore free competition to the market," 
Dennis Wood said in a press release. "Since Tengen first intro- 
duced its line of independently manufactured Nintendo-compati- 
ble cartridges in December 1988, Nintendo has attempted to force 
Tengen out of the home video-game market through a deliberate 
campaign of distortion, intimidation and coercion. . . . We ap- 
plaud Representative Eckart's recognition that Nintendo's monop- 
olistic business practices transcend the legal disputes between the 
two parties, and fully support his recommendation for a full-scale 
investigation into Nintendo's unlawful domination of the U.S. 
home video-game market." The next day Atari Corp. also released 
a statement: "Nintendo has demonstrated its disregard for free 
and fair competition in America," said its president, Sam Tramiel. 

Tengen further attempted to explain the issues in a white paper 
issued a few days later. "The Nintendo monopoly, like all monopo- 
lies, preempts the laws of supply and demand. By absolutely fore- 
closing competition and by strictly controlling not only the volume 
of the games but the product mix, Nintendo, not the consumer, is 
in the position of determining which games are the most popular. 
Further, through its allocation practices, Nintendo regulates the 
amount of revenue its licensees and retailers can generate, not the 
marketplace. Therefore, manufacturing their own products and 
filing the lawsuit became the only way that Tengen and Atari 
Games could meet the actual demand for their products and take 
control of their own destinies." 

In Eckart's detailed, eleven-page letter to the Justice Depart- 
ment's antitrust chief, James Rill, the congressman said that Nin- 
tendo had stifled competition by blocking competitors' software 
cartridges from working, thus allowing Nintendo to make restric- 
tive licensing agreements with software makers. "The net result is 
that there is only one game in town," Eckart wrote. He concluded, 
"You have indicated in a recent public address your concern re- 
garding the 'growing public perception that antitrust has lost its 
purpose and its potency.' I applaud your commitment to a more 



GAME OVER 2 6 7 



active enforcement of our antitrust laws and urge your careful 
attention to this very important and visible area of high technology 
and intellectual property." 

Responding to press inquiries, a Justice Department spokes- 
woman said that the agency would begin an investigation immedi- 
ately. 

Months later, on May 3, 1990, Eckart was called to address 
another subcommittee, this one chaired by Jack Brooks, a con- 
gressman from Texas. Brooks's committee was looking into viola- 
tions of U.S. antitrust laws by foreign governments, specifically 
Japan, and had studied the many-tiered distribution system there, 
a closed club that would be illegal in America. 

Brooks ceremoniously called his fellow congressman to the 
stand to discuss the results of his review of Nintendo. Eckart eluci- 
dated the antitrust issues from his investigation and sounded 
alarms about the high stakes. At the time there were 18 million 
homes with Nintendo systems. He asked, histrionically, "How did 
they get in American homes?" Pause. "They enticed their way in 
through our children's hearts . . . [and now] you can turn that 
video game into a low-level home computer. ... [In Japan] they 
pose a direct threat to the low-end computer industry, and because 
of their 80 percent market concentration, they are in the most 
unique position imaginable to make that similar move here in the 
United States. Is that bad inherently? No. Unless, of course, they 
control the programming through the lock-out chip, through this 
artificial physical barrier." 

Eckart responded to questions about the lock-out chip and bun- 
dling. "Many years ago we said no thank you to IBM when they 
wanted to bundle their programming with their hardware," he 
said. "In fact, now every ad you see always says, 'IBM-compatible,' 
'Apple-compatible.'- They brag that you can put this programming 
in anybody's hardware system. Not so in video games. 

"However, if we allow them to retain this limited hardware gate- 
way, this chip, what does that do to the principle that we estab- 
lished here with IBM? That was in the 1960s. We said the same 
thing to AT&T, you'll recall . . . there should not be hardware 
limitations to . . . access to information. So it has been the policy 
of this government through several presidents, through your pre- 



2BB GAME OVER 



decessors, Mr. Chairman, and now your position in the chair to 
say, 'No. We want access. We want opportunity.' 

"Mr. Chairman," Eckart continued, "if you can turn a toy into a 
computer, what's the next step?" 

Before concluding, he noted that U.S. companies were held to a 
different standard than foreign companies — so much so that for- 
eign companies had little to fear from the current application of 
America's antitrust laws — and he implored Congress to take action 
against Nintendo. 

When Dan Van Elderen testified before the same committee, he 
attempted to avoid any appearance of Japan-bashing by pointing 
out that "our problem is not with any specific country. Our presi- 
dent is Hideyuki Nakajima, a Japanese citizen. . . . Our problem 
is with a specific company — Nintendo." He asserted that "Nin- 
tendo has been wildly successful, but we believe its success is the 
result of an illegal monopoly that is operating at the expense of 
American consumers and its video-game competitors. Nintendo 
has virtually eliminated competition and the concept of open mar- 
kets in the home video-game industry." 

Van Elderen cited Bill White, who was quoted in the Los Angeles 
Times as saying, "American companies don't play hardball like 
this. There's more of a sharing of the pie by American companies. 
In Japan, it's different: winners win big and losers lose." It was a 
restatement of Hiroshi Yamauchi's philosophy of one strong and 
the rest weak. 

On the bundling issue, Van Elderen quoted from an article in 
Computer Lawyer: "Ever since IBM 'unbundled' hardware and 
software in 1969, it has been the accepted dogma in the industry 
that hardware and software are two separate domains. It has long 
been considered taboo for a hardware manufacturer to enforce 
restraints, by patent, copyright, or otherwise, on what software can 
be run on its system or who can manufacture or sell that software. 
Apart from the home video-game business [controlled by Nin- 
tendo], virtually every hardware segment has a dominant supplier 
that would be capable, if given the opportunity, of using its market 
position and/or financial muscle to suppress competition in its sec- 
tor. . . . 



GAME OVER 



"Nintendo, because of its total control of the manufacturing of 
the software, is in the sole position of determining which products 
get produced, how many titles and units of specific software are 
available on the market at a given time, and how many total units 
are available to consumers." Van Elderen also offered the com- 
plaint of an anonymous software company CEO: "We are at their 
mercy. They can make or break any of us overnight." 

"It is," Van Elderen stated, "as if Ford Motor Company only 
allowed Ford gasoline to power its vehicles, or if Sony only allowed 
videotaped movies that it produced in Japan to be played on Sony 
VCRs." 

The congressional hearings continued as the Justice Depart- 
ment ruled that the Nintendo case should be handled by the Fed- 
eral Trade Commission. In collaboration with the attorneys 
general of several states, the FTC began concurrent investigations 
into the price-fixing charges and the implications of the lock-out 
technology. The investigation dragged on for more than a year. 

There was sweating over the potential outcomes at NOA in 
Redmond since they threatened Nintendo's continued dominance 
in the United States. Hiroshi Yamauchi, in Japan, saw things dif- 
ferently. For him the FTC and American antitrust laws were "an 
inconvenience" that had to be worked around; they went with the 
territory. Yamauchi didn't ignore the potential disaster, however. 
It prompted him and Arakawa to look hard at markets that could 
replace America if the worst happened. Nintendo had already 
planned to intensify its push in Europe, but the specter of trouble 
in the United States caused them to expedite the European inva- 
sion. Nintendo would be poised there if any portion of the Ameri- 
can gold mine was to be denied them. 

On October 22, 1990, Greg Zachary, in The Wall Street Journal 
revealed Nintendo's decision to ease its licensing restrictions. The 
decision had been announced in a memo, quietly circulated among 
licensees at the beginning of the month. 

Zachary observed that the timing of the changes — which finally 
allowed some licensees to manufacture their own games — was re- 
lated to the ongoing FTC investigation. The word on the street was 
that Nintendo was in trouble. "Indeed, Nintendo's business 



270 GAME OVER 



records and the records of roughly a half-dozen of its largest licen- 
sees have been seized by investigators over the past six weeks," 
Zachary reported. 

Nintendo confirmed that it had loosened its restrictive policy. 
Zachary concluded, "It denied it took action, which it hasn't pub- 
licly announced, to ease criticism from both government officials 
and competitors, who charge that Nintendo locks others out of its 
business to keep prices — and profits — artificially high." 

The fine print revealed that only a few small licensees could 
manufacture games on their own, and that they could do so only 
after purchasing proprietary chips from Nintendo. NOA would be 
paid for the chips and would also receive a high royalty. Howard 
Lincoln later admitted that although the loosening of the restric- 
tion was a trade-off in terms of Nintendo's profits per game — since 
the licensees still had to buy security chips from Nintendo and pay 
a hefty royalty (reportedly, 20 percent) — Nintendo made no less 
money. However, the eased restrictions did mean that licensees 
had a slightly greater degree of control of their own fates. 

Nintendo also announced that it was rescinding all the exclusiv- 
ity provisions in the licensing contracts. It was all right to release 
games on the Nintendo system and, say, the Sega Genesis system 
without waiting for two years. The reason for the changes, Nin- 
tendo claimed, was that quality had been successfully kept under 
control and Nintendo Power provided a de facto regulator; compa- 
nies that continued to make high-quality games would get the 
attention of consumers through the magazine. One retailer pri- 
vately challenged this claim, saying that by now an effective and 
legal intimidation factor had come into play. (A licensee said, "I'm 
not going to make games for competing systems because we know 
that Nintendo would get even, one way or another.") Van Elderen 
says the changes proved that Nintendo was guilty, and he suspects 
that the FTC forced the new rules. Nintendo consistently has de- 
nied it, and the FTC has refused comment. 

Nintendo's announcement may indeed have resulted from a deal 
made with the FTC, or it may simply have been a way to cut its 
losses in case either one of the Ataris won in court. If its licensing 
agreement was illegal, presumably every licensee could sue NOA 



GAME OVER 271 

for restraint of trade and other damages, and the exposure would 
have been in the billions of dollars. 

The easing up of restrictions may also have been a message to 
Judge Smith, who was hearing both the Atari Games and Atari 
Corp. cases. Nintendo would thus be saying, "Look, we are easing 
up." In reality, however, nothing much had changed. The compa- 
nies that were allowed to manufacture their own games were the 
biggest licensees, the ones that had the best relationships with 
Nintendo in the first place. They were in so deep with Nintendo 
that there was no risk of their going against NOA's wishes on 
anything from pricing to releasing too many games. Nintendo still 
exercised enormous clout by rating games and choosing to feature 
them in — or exclude them from— Nintendo Power and other adver- 
tising. Nintendo could also influence retailers and, if worst came to 
worst, create a short supply of the essential chips. 

The first FTC investigation, made public in April 1991, focused 
on allegations of price-fixing. The investigation, conducted in co- 
operation with attorneys general in New York and Maryland, 
sought to determine whether or not Nintendo maintained artifi- 
cially high prices for its hardware and software by enforcing uni- 
form pricing policies and punishing companies that offered 
discounts. 

There were no price wars throughout Nintendo's first years in 
the marketplace because, it was alleged, Nintendo simply forbade 
them. Stores tried to discount the NES and the games, but Nin- 
tendo pressured them to stop. One chain reportedly lowered the 
price of the NES by a matter of cents and advertised it in Sunday 
newspapers, and a competitor called Nintendo, which immediately 
froze shipments to the company offering the lowered prices. The 
competitor who turned them in allegedly called Peter Main back to 
ask, "Do I get their allocation now?" 

Hundreds of retailers were interviewed for the FTC investiga- 
tion, as were representatives of licensees and distributors. Outside 
the protection of anonymity that came with the FTC investigation, 
it was more difficult to find vocal critics of Nintendo. The manager 
of a chain of toy stores who spoke to the FTC says, "The deal with 



272 GAME OVER 

Nintendo was straightforward: play their way and they were all 
charm and good cheer; cross them and they would rip your lungs 
out." 

The survival of many retailers depended on regular shipments 
from Nintendo, and they couldn't afford to start a price war if 
Nintendo would retaliate by short-shipping them. "Sales guys 
aren't antitrust lawyers. What were they going to do?" Atari 
Games' Dennis Wood asked. 

When, in February 1990, the FTC and the attorneys general 
responsible for enforcing the antitrust laws in the fifty states served 
Nintendo with a civil investigative demand for resale price mainte- 
nance, Lincoln says that he cooperated fully. "They wanted to see 
everything. They wanted to understand our business." 

A year later, some of Nintendo's outside attorneys reported 
back. "You have some problems," one reportedly said. "Your sales 
guys may have gone a little too far." John Kirby counseled Howard 
Lincoln to schedule a conference with the FTC. 

At the meeting, Lincoln was told that the FTC was prepared 
to bring an action unless Nintendo signed a settlement agree- 
ment called a consent decree. He, Kirby, and Arakawa decided 
to sign it if it would "wrap up everything," including the inves- 
tigations by the states. In subsequent meetings with represen- 
tatives of the states of New York and Maryland, it was suggested 
that the resolution could be a redemption coupon offered to con- 
sumers, essentially to pay those who had overpaid for Nintendo 
products. 

Under the agreement, Nintendo promised to refrain from price- 
fixing. It would not reduce the supply of Nintendo products to 
dealers, impose different credit terms on them, or terminate those 
who failed to adhere to minimum suggested prices. It also agreed 
not to ask dealers to report others who offered Nintendo products 
below resale prices suggested or established by NOA. Further, it 
had to send a letter to its dealers advising them that they could 
henceforth advertise and sell its products at any price without any 
adverse action by Nintendo. 

Concurrent with the press conference held in Washington, D.C., 
on April 10, 1991, the New York State Attorney General's office 
released a strongly worded statement. "For the first time in more 



GAME OVER 273 



than a decade, the FTC has rejoined the battle against vertical 
price-fixing by manufacturers and retailers," Attorney General 
Robert Abrams said. "Nintendo sales representatives kept track of 
retail sales to make sure dealers towed the line on prices. Retailers 
who resisted Nintendo's pressure were threatened with a slow- 
down of shipments or a reduction in the number of consoles deliv- 
ered for sale. . . . Nintendo was not satisfied with being the 
major supplier and seller of the biggest electronics game for kids in 
the country. It coerced some of the nation's biggest retailers into 
keeping the prices of its basic video-game system at $99.99." 
Abrams stated that Nintendo had threatened retailers who low- 
ered the price of the system by as little as six cents, wishing "to 
extract every last ounce of profit." He said he was sending a mes- 
sage that was "not only reaching the boardrooms in America, but 
the boardrooms in Japan and in all other countries that do busi- 
ness in America." 

The unbelievable part was the penalty Nintendo would "pay." 
Abrams announced that, anyone who had bought an NES system 
from June 1, 1988, through December 31, 1990, would get a cou- 
pon good for a $5 discount on Nintendo merchandise. NOA had to 
redeem a minimum of $5 million and a maximum of $25 million 
worth of coupons. What it boiled down to was that Nintendo was 
forced to offer a merchandising deal that Peter Main might have 
cooked up on a good day. It was, pure and simple, a promotion to 
encourage people to buy millions of Nintendo games. It was also 
an indication that the government's case against Nintendo was 
fragile. 

In an editorial in Barron's in December 1991, the FTC, not 
Nintendo, was taken to task. The settlement, the piece read, "was 
declared a victory. Abrams said it sent 'the most powerful possible 
message across this country that we will not tolerate this kind of 
pernicious practice which takes millions of dollars out of the pock- 
ets of consumers.' Indeed, it was a victory for Abrams, who ar- 
ranged for Nintendo to mail out the coupon [in New York] with a 
self-congratulatory letter from him, just as his campaign for the 
U.S. Senate got under way. In contrast, consumers had to spend 
$20 to $70 on Nintendo products in order to enjoy the $5 rebate. 
. . . Robert Abrams and the legions of trustbusting lawyers would 



274 GAME OVER 



be far more productively occupied playing 'Super Mario Bros. 3' 
than bringing cases of this kind." 

Despite the fact that settlement was relatively painless for Nin- 
tendo, in a press release Atari Games' Dennis Wood indicated that 
the FTC decision was a vindication. "The FTC concluded what 
we've believed for a long time: that Nintendo has built its business 
on illegal activities." In his press release, however, Howard Lincoln 
emphasized that the settlement was agreed to in order to avoid a 
lengthy court battle and to foster consumer goodwill. "We were 
concerned with how Nintendo game players might view these alle- 
gations," he said. He did not acknowledge that the settlement was 
a boon to business. "We have still suffered the embarrassment," he 
says. "Even without admitting liability, it has hurt to be called 
price-fixers." 

After the settlement was announced, Nintendo did its required 
penitence, sending out letters and indicating that it would include 
a disclaimer on any promotional materials in which it suggested a 
retail price to remind dealers that they were free to set their own 
prices. Nintendo also educated its salesmen and marketers. "We 
made it crystal clear to every employee that if anybody violated the 
antitrust laws, they were history," Lincoln says. 

But the FTC wasn't finished with Nintendo. The investigations 
of licensing policies and the lock-out chip were ongoing. An insider 
suggested that the government was awaiting the results of the Atari 
antimonopoly cases to determine if Nintendo was culpable. If it 
was, the FTC would go after Nintendo with guns drawn. If not, the 
investigation would likely fade away. 

Despite the findings of the FTC or in the lawsuits, some overrid- 
ing questions persisted. One was whether competition should be 
legislated or litigated outside the marketplace. Another was 
whether prosecution would be part of America's counterattack on 
successful Japanese companies. "No one complained until we be- 
came so big," Arakawa says. Peter Main is adamant that Nintendo 
was a victim of the trade war. "If Nintendo were an American 
company, no one would have said a word." Acclaim's Greg Fisch- 
bach agrees: "It's more Japan-bashing." Non-Japanese companies 
were also targeted by the FTC (Nintendo's Redmond neighbor, 



GAME OVER 2 7 5 



Microsoft, was under investigation), but the specific charge of 
price-fixing had been leveled exclusively at a series of Japanese 
companies, including Panasonic, Mitsubishi, and Minolta, all of 
which were found guilty. 

Novelist Michael Crichton exploited U.S.-Japanese trade ten- 
sions in his best-selling 1992 thriller Rising Sun, a pop piece of 
propaganda that nonetheless cited facts. Crichton's fictional con- 
glomerate, Nakamoto, is about to be investigated by journalists. 
"We're doing a big series on taxes/' says a reporter. "The govern- 
ment is finally noticing that Japanese corporations do a lot of 
business here, but they don't pay much tax in America. Some of 
them pay none, which is ridiculous. They control their profits by 
overpricing the Japanese subcomponents that their American as- 
sembly plants import. It's outrageous, but of course, the American 
government has never been too swift about penalizing Japan be- 
fore. And the Japanese spend half a billion a year in Washington to 
keep everybody calmed down." 

"But you're going to do a tax story?" Crichton's protagonist, a 
police special services agent, asks. 

"Yeah. And we're looking at Nakamoto. My sources keep telling 
me Nakamoto's going to get hit with a price-fixing suit. Price-fixing 
is the name of the game for Japanese companies. I pulled a list of 
who's settled lawsuits. Nintendo in 1991, price-fixing games. Mitsu- 
bishi that year, price-fixing TVs. Panasonic in 1989. Minolta in 
1987. And you know that's just the tip of the iceberg." 

Later, Crichton's cop gets another perspective when he dis- 
cusses the issue with his partner. "But price-fixing is illegal," the 
special services agent says. 

"In America," his partner responds. "Yes. But it's normal proce- 
dure in Japan. . . . Collusive agreements are the way things are 
done. . . . Americans get moralistic about collusion, instead of 
just seeing it as a different way of doing business." 

Speaking anonymously, a game developer who worked with Nin- 
tendo said, "Nintendo exerts monopoly control over development, 
over the retailers, over manufacturing. . . . They only get away 
with it because there is no competition. If there were, developers 
would not agree to let someone else control the manufacturing, 



2 "76 GAME OVER 



control the delivering of product, control everything. They would 
not allow Nintendo to charge for everything in advance." 

Nintendo may have had justifications for manipulating the prod- 
uct released for its machine, but such manipulation was illegal, 
regardless of intentions. Part of the reason it limited the number of 
titles companies could release was because it didn't want to see any 
other company gain significant power with retailers—just as com- 
panies attempted to stop labor unions from forming. It didn't want 
coalitions to form. It forced companies to develop titles exclusively 
for its system to force them to choose— and what company could 
afford not to choose Nintendo? Of course the vast majority chose 
it over the competition despite its disproportionately high royalty, 
so prices remained high. 

Nintendo also tied up developers with Howard Lincoln's lawsuit 
machine. "Once you signed up with them, they had you," the game 
developer says, because that signature legally acknowledged the 
validity of Nintendo's patents as well as receipt of confidential 
information required to develop games. Nintendo prohibited 
licensees from abandoning ship once they signed up. It could go 
after straying companies in court—just as it went after Atari 
Games— by arguing that they were able to compete only by ex- 
ploiting proprietary information supplied by Nintendo. 

For years Nintendo had been trying to stop the burgeoning in- 
dustry of video-game rentals. It took the largest video-game rental 
company, Blockbuster, to court and worked with Hill & Knowl- 
ton's Massey to attempt to convince legislators to make it illegal. 
At the same time, Nintendo also attempted to stop video-game 
rentals by coercion and threats. 

Since Nintendo wouldn't sell directly to video-rental stores, rep- 
resentatives of the stores bought games from retailers— just like 
anyone else, but in greater volume. Kids could then go to a place 
like Blockbuster and rent "Super Mario Bros. 3" or "Dr. Mario" 
for a few dollars instead of paying $40 or $50 to buy the game. To 
stop the rental companies from obtaining games from retailers, 
some of the largest Nintendo dealers issued a policy forbidding 
multiple sales of any game. But in at least one documented case, 
someone from Nintendo itself threatened retaliation. 



GAME OVER 277 



Try Soft of America owned kiosks that were set up in malls in the 
Seattle area and sold nothing but Nintendo games. A memoran- 
dum was sent out on June 15, 1989, to Try Soft store managers 
from Brent Weaver, NOA's senior sales and marketing manager. 
"Nintendo of America is very concerned about video stores under- 
mining our business by renting tapes [sic] to customers. They feel 
renting games decreases the perceived value by the customer and 
reduces our sales. During a recent meeting with top executives at 
NOA, Try Soft has promised NOA to follow a strict quantity limita- 
tion policy in all stores and mail order. 

"Henceforth we will limit each customer to no more than two 
pieces of any NOA product, including software and hardware. 
There will be no exceptions to this policy, including multiple in- 
voicing. Do not sell more than two pieces of any NOA product to 
any customer or employees of video stores. ... if two employees 
of a video store come to your store together, do not sell a total of 
four pieces of any one title to them. We are essentially cutting off 
product to video stores. . . . Our policy concerning product man- 
ufactured by third-party licensees is a bit more relaxed. Your store 
will be given monthly a list of products which you may not sell 
more than two pieces of to a customer. All other product will be 
limited to a maximum of 10 pieces and must be multiple-invoiced. 
"Nintendo has begun to watch our sales very closely," Weaver 
wrote, "and if we do not adhere to this policy, our allocations from 
them will be severely reduced. Failure of your store to follow these 
guidelines will result in a reprimand. . . . This policy is effective 
immediately." 

Although Howard Lincoln denied the accuracy of the memo and 
fired off a response to Try Soft saying that it was all a misunder- 
standing, it was part of a growing body of evidence indicating that 
Nintendo had overstepped its bounds. Something more than price- 
fixing seemed to be going on. The question was whether, or in what 
instances, Nintendo was actually breaking laws. The Tiy Soft 
memo revealed that at least some people at Nintendo sought to 
protect their own games and were less concerned about licensees' 
games. Also, the controls on the licensees' games were apparently 
inconsistent; a list would determine what games could and could 
not be sold in bulk. The assertion by Atari Games that licensees 



278 GAME OVER 



were not all treated alike— in spite of what Howard Lincoln, Mi- 
nora Arakawa, and Peter Main claimed— was concretely sup- 
ported by the memo. 

The implications of Nintendo's tight controls, legal or illegal, 
were hotly debated. Some in the industry agreed that they were 
anti-competition and downright un-American, while others agreed 
with the Nintendo party line: NOA was exercising legal controls to 
manage an industry that had once self-destructed. Publicly, licen- 
sees agreed and nonlicensees disagreed. One of the latter, it was 
observed, originally disagreed but changed its mind once it became 
a licensee. 

Jim Mackonochie, who had run Robert Maxwell's software com- 
pany, Mirrorsoft, before joining Commodore International, be- 
lieved that Nintendo's monopolistic practices could stunt the 
larger industry. "It's as if a writer could not publish unless he 
owned the printing press," he says. "How much poorer would our 
civilization be? In the computer industry, the most creative things 
often come when small groups of people, not necessarily associ- 
ated with big companies that could get a license, get together to 
create. The best games— 'Tetris,' 'Bamboozle,' 'Dungeon Master' 
— all came from individuals or small development groups. Nin- 
tendo's policies could block out the most creative people. It could 
kill the industry." 

More likely, Nintendo's policies could kill the competitors. In 
the opinion of an industry analyst, "The lawsuits and government 
don't seem as if they will have much effect. The fact is, if they 
haven't been able to stop Nintendo in the marketplace, this is a 
feeble try. No one seems to be able to stop Nintendo." Another 
industry veteran says he gives Arakawa, Lincoln, and Main all the 
credit in the world. "They broke every fucking antitrust and racke- 
teering law we have and got away with it. America hasn't seen 
anyone like them." 

Nintendo remained consistently unrepentant, and the price- 
fixing settlement allowed it to deny guilt. Likewise, it denied 
charges about monopoly control and restraint of trade, and it 
never backed down on its commitment to the restrictive security 
system. As Hiroshi Imanishi said, "We made a choice and it turns 
out that our choice was the correct one." Arakawa added, "The 



GAME OVER 279 

chip has done exactly what we intended it to do. It is why we have 
been able to maintain such a strong list of games, and why consum- 
ers can trust the Nintendo quality seal." Howard Lincoln says the 
tactics described in the Try Soft memo may show that individuals 
associated with Nintendo went too far, but the company itself was 
guilty of nothing more than covering all bases in order to make as 
much money as it possibly could. "What's more American than 
that?" he asks. 

Another Nintendo licensee believes that much of the anti- 
Nintendo sentiment was sour grapes. "It's ironic that the only 
people crying are the companies who are hurt by Nintendo's suc- 
cess," he says. "Nakajima and Wood sicced the feds on Arakawa 
even though his only crime was that he did the best he could for 
the parent company and the NCL stockholders. It's not lost on 
many of us that Atari, the loudest critic, is the company that de- 
stroyed video games the first time around. Nintendo was stronger 
and smarter. That's the bottom line." 

It is also partly why the Japan-versus-U.S. battle worsened, with 
Nintendo in the forefront. For several weeks in early 1992, when 
Yamauchi's attempt to buy the Seattle Mariners was making head- 
lines, the company was watched on both sides of the Pacific. In 
Tokyo and Osaka, the "attack" on Nintendo was an illustration of 
America's hostility toward Japan. Articles in the American press 
indicated that the United States was finally drawing the line. In a 
twist on Akio Morita and Shintaro Ishihara's The Japan That Can 
Say No, America was saying no to Japan: no to a Japanese manu- 
facturer that had won a $122 million contract to build rail cars for 
the Los Angeles County Transportation Commission (the contract 
later went to an Idaho-based company); no to Japanese-made trac- 
tors in favor of John Deeres; no even to Kristi Yamaguchi, the 
Olympic figure skater, who received few of the sort of endorse- 
ment offers that Olympic gold-medalists normally get because, ac- 
cording to a National Public Radio report, she was "the wrong 
ethnicity"; and no to Hiroshi Yamauchi in his bid to buy into the 
American pastime. 

In an interview with The New York Times, the Nintendo chair- 
man attempted to show that his interest in the Mariners was his 
way of returning something to the country that had made him so 



GAME OVER 



rich. He explained that Seattle businessmen, and even the gover- 
nor of Washington State and one of its U.S. senators, had solicited 
the bid. (The current owner was planning to move the Mariners to 
St. Petersburg, Florida.) Yet Yamauchi's patronizing "benevo- 
lence" was the last thing Americans wanted; they didn't need Japa- 
nese charity. 

Still, local public opinion in the Pacific Northwest favored the 
sale to Yamauchi. Letters to the baseball commission called the 
decision to ban the sale racist and unfair. Major league baseball 
wanted local ownership, and Arakawa lived in Seattle. In any case, 
baseball was not exclusively American, since Canadians had been 
allowed to own teams since the 1960s. 

On the other hand, one letter writer, in an attempt to prove that 
Yamauchi would make an undesirable owner of an American 
team, charged that Nintendo was a racist company that discrimi- 
nated particularly against black Americans. A Nintendo employee 
named Carey Wiggins, an African-American with a degree in mar- 
keting, was the first to level the charge. Wiggins had moved to 
Seattle and found a job at Nintendo as a temporary warehouse 
worker. Nine months later he was still a temporary employee, with 
no benefits and no commitment from the company to advance him, 
in spite of the fact that less qualified workers who had worked for 
shorter periods of time had been hired as permanent, full-time 
employees. Wiggins claimed that he was passed over for jobs on a 
number of occasions, each time in favor of less experienced, 
younger, white employees. 

In April 1990, Tim Healy of the Seattle Times did a series of 
articles on charges of discrimination at Nintendo, and reported 
Howard Lincoln's claim that Nintendo's explosive growth made it 
difficult to find enough qualified employees regardless of racial or 
ethnic background. Wiggins, however, didn't accept the excuse. As 
part of a group of twenty-five African-American Nintendo employ- 
ees, he accused NOA of racial discrimination in the hiring and 
promotion of blacks. The employees met with a watchdog organi- 
zation, the Seattle Core Group, which mounted an investigation. 
The Core Group determined that there were only thirty to thirty- 
five black employees out of the total of 1,500 to 1,600 in the com- 
pany, and of these, only one was in management. 



GAME OVER 2B 1 



Healy reported that Nintendo's record was not atypical for 
American subsidiaries of Japanese companies, and cited a study 
that found a pattern of Japanese auto manufacturers locating 
plants in areas of the United States with low black populations. 
Lawsuits alleging discrimination had been brought against more 
than half a dozen American subsidiaries of Japanese companies. 
Honda and Nissan paid $600,000 and $6 million, respectively, to 
settle investigations by the Equal Employment Opportunity Com- 
mission (EEOC). Other companies accused of racism in the 
United States included Toyota, Nikko Securities, and Sumitomo 
Bank. It was true that in the video-game industry— Nintendo's 
industry — many games imported from Japan had to be modified so 
that they would be acceptable in America; the villains in these 
games were frequently black or otherwise dark-skinned. 

There were also reports of anti-black jokes among both white 
and Japanese workers at Nintendo. According to the director of 
the Core Group, African-Americans were "given messages that 
they were not welcome at Nintendo." 

The Core Group requested a meeting with Arakawa. After the 
state employment agency got involved, Arakawa agreed to a meet- 
ing with the Core Group and representatives of other Seattle- 
based groups concerned about discrimination. He gave a compas- 
sionate speech — he had been the victim of racism himself, he said 
—and pledged that Nintendo had begun training its employees in 
ways to avoid workplace discrimination, and promised to initiate 
an affirmative-action plan. 

Meanwhile, the state of Washington suspended its practice of 
referring job seekers to Nintendo even though Phil Rogers con- 
tested the Core Group's statistics. He insisted that Nintendo em- 
ployed 110 ethnic minorities, a number representing 14.3 percent 
of the permanent work force. (The percentage included all minori- 
ties, including Japanese.) He also said that three, not one, of Nin- 
tendo's 147 managers were African-American. 

In 1991 Nintendo unveiled its plan for an affirmative-action pro- 
gram, but it was criticized as inadequate by the Core Group. How- 
ard Lincoln defended it and pointed to steps Nintendo had taken 
to recruit blacks and other minorities. An EEOC spokesman in 
Seattle agreed that Nintendo seemed to have corrected the prob- 



GAME OVER 



lems; there had been no new complaints. The state resumed refer- 
ring applicants to Nintendo. 

Nonetheless, when Yamauchi made his offer to buy the Mari- 
ners, the head of the Core Group, Oscar Eason, brought the issue 
to the attention of baseball commissioner, Fay Vincent. Eason 
wrote: "This letter is to express our objection to the proposed 
purchase of the Seattle Mariners baseball franchise by a group of 
investors that would include Nintendo of America. Approximately 
two years ago over 95 percent of all African- Americans employed 
by Nintendo appealed to [us] for assistance to help improve the 
discriminatory conditions that existed at NOA's Redmond, 
Washington, facility. . . . Please understand; this appeal is totally 
unrelated to any discussion pertaining to racism toward Asians, 
'Japan-bashing' or prejudice aimed at foreigners." 

Nintendo's alleged racism, by then a hollow and unsupported 
charge, was not the primary issue. Howard Lincoln says, "There is 
a lot of Japan-bashing back in Washington, D.C. Nintendo doesn't 
have a host of friends, primarily because we're a Japanese com- 
pany. Nintendo is a well-known company with a large market share 
and it has been accused of all of these terrible things. ... We do 
have the reputation of being big and tough, and I understand some 
of the sentiment against Japan in Washington. We do have trade 
problems. I object like any other American that there are barriers 
to Japan's market. But that is not what we are doing. I'm not 
causing those barriers." 

What Nintendo did do was to aggressively protect its turf, meet- 
ing any perceived threat to its continued growth, no matter how 
small, head-on, sometimes with bigger guns than necessary. The 
idea was to nip any threat in the bud lethally. Howard Lincoln 
never denied the company's reputation for litigiousness. Rather, 
he exploited it. "Lincoln's motto was Tuck with us and we will 
destroy you,' " says a fellow attorney. "Otherwise he's a really nice 
guy." 

To supplement their business in an increasingly competitive mar- 
ket, a few video-rental outfits began renting Nintendo games in 
1987 and 1988, when demand for cartridges was enormous. For 
some of those stores, Nintendo rentals represented 30 to 40 per- 



GAME OVER 



cent of their business. For most it was a lower but still significant 10 
to 15 percent. The largest rental chain, Blockbuster, had revenues 
of $1.5 billion in 1990, and perhaps $150 million of this was from 
Nintendo game rentals (Blockbuster would not disclose the exact 
figure). 

The video-rental industry insisted that it was good for Nintendo; 
kids could try games out before buying them. Nintendo disagreed; 
kids could try games out instead of buying them. Howard Lincoln 
said that video-game rental was "nothing less than commercial 
rape. I can spend thousands of hours and millions of dollars creat- 
ing a game," he says. "I expect, therefore, to be compensated every 
time the thing sells. All of a sudden, out of the blue, comes a 
system that distributes my game to thousands of people and I get 
no royalty. The video-rental companies exploit the thing — renting 
it out over and over again, hundreds and even thousands of times 
— and I get nothing. The guy who developed the game and Nin- 
tendo get screwed. What does the guy who's renting the cartridge 
contribute? What does he pay in terms of a royalty for the com- 
mercial exploitation of copyrighted work? Zip." 

Movies, which enjoy a huge rental market, are protected. Stu- 
dios decide if and when a movie will be made available to rental 
stores, commonly six months to a year after its initial release. The 
studios have milked as much money from the market as possible 
before they go for the gravy, the videocassette market. A similar 
system may be reasonable for video games. However, the same day 
a hot game is released to the public in toy and electronics stores, 
representatives from video-rental stores go to retailers and buy all 
the copies they can get. 

Nintendo not only refused to sell to the chains and individual 
stores that rented movies and games and pressured its retailers to 
do the same. In addition, it attempted to address the problem in 
court and in Congress. Legislation was proposed in the Senate in 
May 1989, spearheaded by software companies such as Word- 
Perfect Corporation and Microsoft and the Software Publishers 
Association, that would prohibit the rental of all computer soft- 
ware, including video games. 

The trade association of video-rental dealers, the Video Soft- 
ware Dealers Association (VSDA), promised to crush the bill as 



GAME OVER 



long as video games were part of it; video-game rentals were too 
lucrative to give up. The computer-software companies and the 
SPA succumbed, according to Howard Lincoln, and cut a deal with 
the VSDA, agreeing to exclude video games from the bill. Since 
the revision of the proposed legislation required some justification, 
it was argued that video games, unlike floppy disk-based software, 
were not copiable. It was easy to rent computer software and make 
a permanent copy at home, but it was nearly impossible to make a 
copy of "Super Mario Bros." (although one Taiwanese company, 
Baelih, advertised a game-copying device). 

Before 1989, Nintendo had never been represented in Washing- 
ton and had relied on the SPA. However, Howard Lincoln charged, 
the association "sold us down the river," as did Microsoft, their 
neighbor in Redmond. (Howard Lincoln was rebuffed when he 
went to the company to ask for its support.) 

Don Massey, a lobbyist who represented such clients as the gov- 
ernment of Turkey and Gerber Products Co., was retained to at- 
tempt to influence the rental legislation. Nintendo's position was 
supported only halfheartedly by Washington State's congressional 
delegation, which was caught in the middle; their other constituent 
in Redmond was Microsoft, which wanted the bill to go through 
whether or not Nintendo liked it. With Massey's help, Nintendo 
fought the change vigorously, but lost in July 1969. 

NOA then tried to push for a compromise bill that would pro- 
hibit the rental of a video game for a year after its release. This was 
proposed in Congress by Representative Joe Barton, from Texas, a 
friend of Byron Cook, the president of a Nintendo licensee called 
Trade West. Nintendo lost that one too. There was one more try, 
an attempt to pass a bill similar to one sponsored by the record 
industry that sought to ban the rental of records, but it never made 
it through the House Judiciary Committee. "We got killed on Cap- 
itol Hill," Lincoln admits. 

There were other avenues Lincoln took in his attempt to stop 
the rental companies. He considered suing them but concluded 
that Nintendo wouldn't prevail; a guiding principle in copyright 
law called the "first-sale doctrine" said that the buyer of a piece of 
property could do just about anything with it. Since a ban on 
rentals by the courts or Congress seemed unlikely, Nintendo tried 



GAME OVER 



another tack. The video-rental companies were packaging game 
cartridges with photocopies of Nintendo's instruction manuals 
(original manuals rented with games were routinely lost or torn). 
Since these were copyrighted, Lincoln sued over the manuals. 

NOA went after the biggest company, Blockbuster, filing a suit 
on the eve of a VSDA convention in August 1989, and eventually 
Blockbuster was hit with a preliminary injunction that prohibited it 
from copying the manuals. Nintendo followed this minor victory 
with an announcement that it would sue any other company that 
copied manuals, even though the action didn't hurt the rental busi- 
ness in the long run; companies simply came up with common 
instructions to go with games. 

Nintendo also pursued video-rental outlets that named their 
video-game departments "Nintendo Centers" and retailers that 
used "Nintendo" as a generic term — i.e., "Come in and buy a 
Nintendo game." NOA felt it had to pursue all offenders if Nin- 
tendo was not going to enter the language as the word for video 
games. Of course Lincoln didn't complain when General Norman 
Schwarzkopf, in his press briefings during the war in the Persian 
Gulf, referred to Desert Storm as "the first Nintendo war," but few 
others were allowed to take the company's name in vain. 

Lincoln's in-house and outside counsel also continued to pursue 
a host of counterfeiters, smugglers, and purveyors of illegal games 
through 1992. NOA spent millions of dollars going after counter- 
feiters, occasionally with the cooperation of the American govern- 
ment. In mid-1991, in conjunction with U.S. Customs authorities, 
Nintendo infiltrated a huge counterfeiting ring. Individuals associ- 
ated with prominent Taiwanese companies that manufactured and 
exported counterfeit games were arrested in Chicago, San Jose, 
Los Angeles, and Miami. Among those arrested were executives of 
United Microelectronics, a multimillion-dollar Taiwanese manu- 
facturer of integrated circuits. United Microelectronics was Tai- 
wan's largest semiconductor manufacturer, and the bust had the 
potential to precipitate an international incident, particularly when 
it was revealed that the Tkiwanese government held a 30 percent 
interest in the company. It made not only counterfeit games but 
also counterfeit memory chips, which were sold to dozens of other 
Tkiwanese counterfeiters. 



GAME OVER 



"We finally hit pay dirt," Lincoln says. "It's like stopping a drug 
ring. You find the little guys but keep missing the big guys. We 
finally hit the big guys." The big guys turned out to be a govern- 
ment that sanctioned counterfeiters operating in huge, ultramod- 
ern plants, churning out nothing but counterfeit product. U.S. 
Customs said that 70 percent of counterfeit computer and elec- 
tronic products seized in the United States between October 1990 
and March 1992 was from Taiwan. Nintendo was the first company 
to tie the illegal operation to the government itself. 

Taiwanese game cartridges worked on the NES by "zapping" the 
security chip. A specially designed chip shot a negative voltage 
spike into one of the input pins of the security chip in the NES 
base unit. This surge, or "zap," knocked the security chip sense- 
less; its program got lost in a repeating loop in "the weeds," as a 
techie explained. "It was lost in space." 

Packed with up to a hundred games on one cartridge, the coun- 
terfeit games sold throughout the world for from fifty to several 
hundred dollars. They were available in major cities at electronics 
or video-game shops, mostly small ones. 

In early 1992, Nintendo asked the U.S. Trade Representative to 
take action against the Taiwanese government. In 1990 alone, Nin- 
tendo claimed to have lost more than $1 billion in wholesale sales. 
Up to 100 million counterfeit games were sold that year in the 
United States, and most of the ROM chips in them were manufac- 
tured by United Microelectronics. 

Nintendo also sued retailers that carried the illegal games and, 
when possible, pursued the manufacturers and importers; there 
were three hundred suits in Canada and the United States. The 
games were also sold through mail order, newspaper ads, and flea 
markets. Nintendo went after any violator it could find. 

The counterfeit business was so enormous that even if Nintendo 
stopped it in the United States, Canada, and Europe, it couldn't 
touch the mammoth industry in the People's Republic of China, 
where 100 percent of the growing Nintendo business was counter- 
feit, both hardware and software, almost all from Taiwan. The 
counterfeiters actually set up a company in China called Nintendo, 
according to Howard Lincoln. Nintendo tried to bring the issue to 
the attention of the Chinese government, but to no avail. In 1992 



GAME OVER 2B7 

the U.S. Trade Representative agreed to intercede on Nintendo's 
behalf. 

Closer to home, Nintendo went after a relatively small San Fran- 
cisco-based toy company, Lewis Galoob, not for counterfeiting, 
but for a peripheral device. Galoob manufactured a product (un- 
der license from a British firm) that allowed players to modify 
Nintendo games. Mario could jump higher, become invincible, and 
have a hundred or even an infinite number of lives — whatever the 
player chose. Galoob sold the device in the United States under 
the name Game Genie. 

Nintendo claims that Galoob approached them about a license 
for Game Genie. Galoob denies this. Howard Lincoln insists that 
Nintendo considered it, but decided that the invention would de- 
stroy the experience of many Nintendo games. "It creates deriva- 
tive works," he said. "It not only alters Nintendo games, infringing 
on copyrights, but can make them less fun, too easy to play." 

Nintendo sued in June 1990 when Galoob announced its plans 
to release Game Genie on its own. Nintendo's argument was that 
millions of dollars went into designing games, that decisions about 
the number of lives a player was allowed and the capabilities of 
characters were essential to game play, and that altering these key 
components could destroy a good game. Howard Lincoln argued, 
"If you spend enormous time and effort to come up with 'Super 
Mario 3' and the player can get all the way through it, basically by 
cheating, then the challenge is gone, and challenge is what our 
business is about." 

The changes to a Nintendo game, Galoob countered, were tem- 
porary — they did not create new versions of the games — and con- 
sumers had the "freedom and right ... to play their Nintendo 
games in ways they see fit." 

In June 1990, Nintendo got a preliminary injunction that barred 
Galoob from producing or marketing the Game Genie. Galoob 
appealed to the Ninth Circuit, which upheld the injunction. In a 
nonjury trial in April 1991, with Judge Fern Smith, the same judge 
hearing the Atari cases, presiding, witnesses included Sigeru 
Miyamoto, flown over from Kyoto, who testified for a full day. 

But Judge Smith ruled in Galoob's favor in July 1991, deciding 
that Game Genie did not create derivative works, and that even if 



GAME OVER 



it did, Galoob was protected by the fair-use doctrine. Galoob was 
given the green light to bring Game Genie to market, and its stock 
shot up 20 percent the day the court's decision was made public, 
despite Nintendo's announcement that it planned to appeal. Ana- 
lysts predicted a boost in Galoob's sales by $30 million a year, 20 
percent more than its pre-Game Genie totals. There were orders 
for half a million units immediately after the decision was an- 
nounced, even before a massive ad campaign was launched for the 
Christmas season in 1991. Eight hundred thousand units, all 
Galoob could make, were sold by the time of the Toy Fair in 
February 1992. The company released a Game Genie for Sega, 
too, and planned to launch both versions in Europe, Australia, 
and, in late 1992, Japan. 

Reporters jumped on Judge Smith's ruling as "the first crack in 
the fortress that Nintendo has established in the video-game mar- 
ket," as the San Francisco Chronicle put it. "The congratulatory 
calls began pouring in as soon as the decision was announced," 
reported the Examiner. Howard Lincoln admits, "They all loved it. 
Godzilla in Toyland had gotten beaten. It was like a dragon had 
beenslayed. . . . If we win on the appeal," he adds, "I'll write the 
press release myself." (Nintendo lost the appeal in September 
1992.) 

Nintendo was not only in the business of suing. Fighting against 
Nintendo's ability to lock them out, some renegade companies, 
including American Video Entertainment (AVE), Camerica, and 
Color Dreams, made Nintendo-compatible games that defused the 
security system with "zapper technology." In 1991 American Video 
Entertainment discovered that their games didn't work on the 
newer NES systems; the circuitry inside them had been revised. 
Richard Frick, AVE's president, believed that Nintendo had inten- 
tionally reworked its machine to reject his cartridges. In a letter to 
Nintendo, he charged that the company was trying to put him out 
of business. 

Howard Lincoln says that the NES hardware revision that "hap- 
pened" to lock out Frick's games was part of Nintendo's ongoing 
war against counterfeiters. NCL had already updated the NES on 
fourteen or fifteen different occasions, and the latest version was 



GAME OVER 



designed to stop illegal Taiwanese multi-game cartridges from 
working on the system. "We were trying to stay one step ahead of 
the counterfeiters," Lincoln insists. "American Video Entertain- 
ment accused us of deliberately doing it to them. I didn't respond, 
but the answer is: 'Tough! We can make our product any way we 
want. The change was not to drive you out of business; we didn't 
even know you were in business before we got your letter.' " 

Frick joined the list of companies suing Nintendo with a $105 
million action in January 1991, charging that the company had 
altered the NES machines in a deliberate attempt to render his 
company's cartridges incompatible, and, once again, that Nintendo 
was guilty of monopolistic practices designed to kill competition. 
The suit also claimed that Nintendo failed to inform buyers that 
only NES-approved games would work on the machine, even 
though, in the course of the Atari Games litigation, it had stated 
that outside cartridges could work on the NES. One thing was 
proved by AVE: Nintendo used its licensing agreement to keep 
prices high. Frick demonstrated that he could make a profitable 
game retailing for $20 because he didn't have to pay Nintendo's 
manufacturing fees and royalties. He said he had made a sizable 
profit on sales of 60,000 "F-15 City War" games. 

Howard Lincoln dismissed AVE's claims out of hand. Even Dan 
Van Elderen of Atari Games indicated that Nintendo would likely 
get away with the system revision that blocked the zapper technol- 
ogy, even if this had been its sole purpose. The technology, Van 
Elderen concedes, actually could harm the NES. "The revision was 
a sound engineering decision that made up for a deficiency in the 
system. . . . The NES was never designed to withstand that kind 
of high-voltage charge." 

Frick said he planned to go after Nintendo with everything he 
had. In addition to fighting Nintendo in court, he decided to go to 
the public, urging consumers to return "deficient" NOA units to 
retailers and to demand refunds or machines that played all games. 
Consumers, however, did not respond to his call. 

Nintendo couldn't legally pursue companies like AVE or Color 
Dreams, which never had licensing agreements and whose games 
didn't infringe the security-system patent, and had to fight those 
companies in other ways. There were new charges of distributor 



29D GAME OVER 



and retailer intimidation, with Nintendo allegedly threatening 
companies that carried Color Dreams or AVE games. In 1992 
Richard Frick claimed that a Nintendo representative warned the 
head of the electronics departments of Wal-Mart that if customers 
used games employing the zapper technology on an NES they 
would thereby invalidate the Nintendo warranty. It was one more 
variation on an old theme: Sell only authorized Nintendo product 
or else. Wal-Mart would not confirm the accusation, Frick says, 
because, "You tell on Nintendo and you lose." 

Howard Lincoln insists the charges are untrue. "We're not idi- 
ots," he says. "We would never threaten retailers. It's wrong, and 
most retailers would consider it inappropriate." The fact was that 
Nintendo was probably able to repress the upstart companies with- 
out any overt action because of its control of distribution. Retailers 
dealt with the biggest companies, all licensees, because it was eas- 
ier. Also, the best games tended to come from the major players, 
who had the resources to invest in game development. Nintendo 
controlled sales by promoting only approved games in Nintendo 
Power, and retailers were unlikely to waste valuable shelf space on 
games that didn't appear in the magazine. The retailers also felt 
more comfortable selling games backed by Nintendo's and licen- 
sees' service and support networks. The small companies simply 
could not compete. 

AVE did find customers in the video-rental industry. Block- 
buster led the rental chains with an order for 2,050 copies of one 
AVE game with new technology that circumvented the Nintendo 
system revision that had locked out earlier AVE games. The game, 
"Wally Bear and the No Gang" (it was originally ". . . the Just 
Say No Gang," but Nancy Reagan had trademarked that phrase), 
was endorsed by the American Medical Association for its mes- 
sage: in spite of peer pressure to drink and do drugs, Wally Bear 
said no. The cartridge worked on all NES units, although there was 
no way of knowing whether Nintendo would come up with another 
system revision to block "Wally Bear" and AVE's technology. 

Howard Lincoln looked for other ways to stop the companies 
that got around the security system, and said he was investigating 
other patents or copyrights the companies might have infringed. If 
he found grounds, he would sue. There was, however, at least one 



GAME OVER 



other maker of nonlicensed games that Lincoln was unlikely to go 
after. The company was called Wisdom Ti*ee and it made the Bible 
Adventure Series of video games which included "Noah's Ark," 
"Save Baby Moses," and "David Versus Goliath." The possible 
headlines — for instance, Nintendo sues baby moses creator — 
would have given even polished Nintendo PR chief Bill White 
nightmares. 



\ 



\ 13 

FROM RUSSIA ^\ 

WITH LOVE ^ 



As Nintendo grew and its target audience, the classic audience for 
video games (young boys), was nearly saturated, the company went 
after new groups of customers. Peter Main says it was a strategic 
decision from early on. "We wanted to break out from the historic 
video-game user, boys eight to thirteen, because the thirteen-year- 
old boy will soon be fourteen years old and pass from our grip. Our 
objective from day one was to move beyond that narrow base." 

Girls were an increasingly important market for Nintendo in 
mid to late 1991, when more powerful systems by competitors had 
distracted some of Nintendo's formerly loyal boys. A survey Peter 
Main commissioned revealed that girls from six to fourteen were 
the primary players in many households. Their level of satisfaction 
was "intensifying," according to the market researcher. 

In Japan, adults had never been considered part of Nintendo's 



FROM RUSSIA WITH LOVE 



market. Inherent in the Japanese culture was jyukyu, a system of 
ethics dating from the seventeenth century, which held that the 
most important values were hard work, thriftiness, and serious- 
ness, and that luxury and leisure were a waste of time. Jyukyu was 
behind Japan's phenomenal productivity, the high savings rate of 
its people, and, ultimately, its obsession with education and work. 
Vestiges of jyukyu made it unthinkable for many adults to sit in 
front of video-game machines. 

Not in America. Adults in the West comprised many of the 
computer- and video-game players, and increasingly they wrestled 
controllers away from their children in order to play Nintendo. 

NOA encouraged them. Arakawa had made a point of selling 
Nintendo products in electronics as well as toy stores. Peter Main 
says, "We wanted to be in electronics outlets, department stores, 
and discount mass merchants in addition to toy stores because we 
knew there were varying signals that emanated from a product 
depending on where it was distributed." Since the initial test in 
New York City, Arakawa had fought to get into Circuit City and 
Crazy Eddie — among the stereos and VCRs — as well as Toys "R" 
Us. 

A growing number of licensees came up with games for adults, 
alternatives to shoot-'em-ups and karate games, like "Jeopardy," 
"IHvial Pursuit," and sophisticated sports games. "Bases Loaded," 
made by a licensee named Jaleco, was particularly ingenious, even 
beyond its impressive graphics and sound, and serious baseball 
fans could obsess over its trivia and decision-making options. In 
"Bases Loaded 2," pitchers were guided by an ERA and batters by 
individual statistics. Programmed into the game were what Jaleco 
called "a special player-performance system" that programmed 
players to have streaks and slumps. You decided if a player was 
having a bad day and if you ought to bench him. More than 4 mil- 
lion "Bases Loaded" games were sold. 

Adults played against each other, against their children, and in 
secret after the rest of the family had gone to bed. Nintendo Power 
featured celebrity adults who played, and the game counselors 
heard from parents who had devoted entire nights to practicing so 
they could trounce their kids. Still, nothing compared to the adults 



29-4 GAME OVER 



who flocked to Nintendo because of a new hardware product 
launched in 1989. 

Gunpei Yokoi and his forty-five-man R&D 1 team of designers, 
programmers, and engineers came up with a device that married 
the NES and Game & Watch. Like the NES, it was a video-game 
system that played interchangeable cartridges, and like Game & 
Watch, it was quite small. Here was a video-game system that could 
be played anywhere — in planes, trains, and automobiles, or in the 
quiet of a bedroom. Inside its pretty package, Game Boy combined 
portability, miniaturization, and entertainment, three of the most 
important attributes of emerging technologies, according to Greg 
Zachary of The Wall Street Journal Game Boy was so slick that a 
Sony engineering team was reportedly chastised by managers and 
executives in Japan for being beaten by Nintendo. "This Game 
Boy should have been a Sony product," a manager is said to have 
told the group, which worked on portable entertainment devices. 
Some of the engineers were shuffled to new departments, and one 
was so shamed that he left the company. 

Game Boy, decidedly playful (Sony probably would have called 
it Gamemflrt), was housed in a gray plastic case the size of a tran- 
sistor radio. On the face were buttons and a palm-sized, black-and- 
sallow-green liquid crystal display (manufactured by Sharp). Game 
Boy was released at a lower price than Yamauchi had aimed for, 
$100. He predicted Game Boy sales of 25 million units within three 
years. 

Once again, hardware sales were only the beginning. Game Boy 
was a tiny computer that could, if successful, create a viable soft- 
ware market all its own. Game Boy games, the size of a saltine 
cracker, would sell for $20 to $25, so a sizable sub-industry was 
possible. 

When Game Boy was released, it was criticized because it didn't 
have a color screen. Yamauchi had decided to forgo color for cost 
and efficiency. A color display would have required the power of 
four or eight AA batteries instead of Game Boy's two. Color would 
also have drained the batteries too quickly. Low-priced color 
screens had other problems. They were difficult to see in bright 
light (Game Boy was difficult enough as it was). Competitors Sega, 



FROM RUSSIA WITH LOVE 295 

Atari Corp., and NEC released expensive hand-held systems with 
color screens that sold a small fraction of the number of Game 
Boys. Two hundred thousand Game Boys sold out in two weeks in 
Japan, and 40,000 units were sold the first day in the United States. 
NCL sent 1.1 million Game Boys to the United States in its initial 
shipment, and Toys "R" Us tried — unsuccessfully — to get them all. 

Of course lots of kids played Game Boy — two could be con- 
nected for competitive play — but a remarkable aspect of its success 
was the number of adults who played it. Game Boys were fre- 
quently seen in first-class compartments on cross-country flights, in 
corporate lunchrooms, and in desk drawers and briefcases. Presi- 
dent Bush, in the hospital in May 1991, was pictured in newspapers 
commander-in-chiefing a Game Boy. 

Nintendo unleashed Game Boy marketing campaigns that 
targeted adults. "This Father's Day treat Dad like a kid," read one 
of Bill White's ads. Another ad ran in an airline magazine to 
attract business travelers. "If you're reading this ad, you're very 
bored," the copy read. "You've mastered the safety instructions in 
every language, and the flight attendant won't give you any more 
almonds. Now what?" The choices: "Travel to another galaxy, golf 
. . . [all with Game Boy]. Game Boy won't ask you for your des- 
sert, and fits just as neatly into the mouth of that screaming child 
beside you as it does into your briefcase. . . ." 

Minoru Arakawa first saw a prototype of Game Boy in Kyoto in 
1987 and promptly topped Yamauchi's predictions. Before it was 
over, 100 million Game Boys would sell throughout the world, he 
said. To reach such astronomical levels, however, it would need a 
monster game, and Arakawa saw it at an arcade-industry trade 
show in June 1988, where Randy Broweleit of Atari Games was 
showing off a prototype of an arcade version of a game called 
"Tetris." At the convention with Howard Lincoln, Arakawa stood 
in front of the console and played, transfixed. Broweleit told Lin- 
coln that Atari Games had the coin-op rights and that Atari's 
Tengen had the rights to produce a home video-game version. 
Broweleit said that "Tetris" rights had also been sublicensed in 
Japan — coin-op rights to Sega and home-game rights to Henk 
Rogers's company, Bullet-Proof Software. Arakawa said he was 
pleased that "Tetris" would be coming out on the NES. He did not 



GAME OVER 



say he was also pleased that there was no mention of the hand-held 
rights, which might still be available. 

Back in Redmond, Arakawa's engineers created a test version of 
"Tetris" that worked with a prototype Game Boy. When Arakawa 
plugged the tiny "Tetris" into Game Boy and played it, it was as if 
they had been made for each other. The "Tetris" pieces were large 
enough to be seen easily on the small screen, and the game was 
simple and hypnotic. Arakawa believed its appeal would cut across 
all age groups, as well as across the gender line, and said, "We 
must have this game." 

Arakawa instructed Lynn Hvalsoe, the company's general coun- 
sel under Howard Lincoln, to track down the hand-held "Tetris" 
rights, but she couldn't determine who held them. Apparently 
Atari Games had bought its rights from Mirrorsoft, the London- 
based software group owned by Maxwell Communications, and 
Mirrorsoft claimed it had secured all "Tetris" rights from the cre- 
ators in the Soviet Union. "They were giving us all sorts of bull- 
shit," says Howard Lincoln. "We weren't getting anywhere." The 
reaction from Mirrorsoft made Hvalsoe suspicious, and she re- 
ported to Arakawa that Mirrorsoft's ownership of the rights ap- 
peared dubious. This led Arakawa to send an emissary to the 
Soviet Union to attempt to contact the inventor of "Tetris." 

Alexey Pajitnov had the build of a medium-sized bear. His face 
was framed by auburn hair and a harshly clipped beard. He had 
grown up in Moscow, where his father was an art and theater critic, 
and his mother wrote for newspapers and for a weekly cinema 
magazine. As a child, Pajitnov's passions were mathematics and 
movies. As a rare privilege of his mother's occupation, he was 
given passes to the yearly Moscow Film Festival, where he watched 
five movies a day, fifty in ten days. "It was the only window to the 
outside," he says. His other love, math, was expressed in playing 
games that involved geometry, algebra, and other systems of logic. 

When Alexey was eleven his parents divorced. He lived with his 
mother in a one-room state-owned apartment. He was seventeen 
when they were able to acquire a private apartment in a modern, 
fourteen-story building at 49 Gersten Street, in a fancy neighbor- 



FROM RUSSIA WITH LOVE 237 



hood of embassies and hotels not far from the Arbat, Moscow's far 
humbler Champs-Elysees. 

Apartment 106 was, by Moscow's bleak standards, spacious and 
airy, with two bedrooms, a fair-size living room, and a small 
kitchen with a view of St. Basil's Cathedral in Red Square. Book- 
shelf-lined walls were crowded with scientific books, computer 
manuals, classic novels in Russian, French, and English, and books 
on art and film. On other walls were framed prints of paintings by 
Monet, Renoir, Matisse, and Modigliani. 

Alexey was a good student, particularly in math; when he was 
fourteen, he was a finalist in a citywide mathematics competition, 
and he spent the last three years of school in a specialized math 
program. During that time, in the summer he turned fifteen, he sat 
down in front of a computer for the first time and created his first 
program, a number game. 

"Mathematicians are usually very strange people," Pajitnov says. 
'They are fully in their abstract worlds, and I was there with 
them." But he had other interests too. With friends he played 
cards, drank beer or vodka, and headed to the countryside for 
camping expeditions. He hung out with girls and was in every way, 
he says, a "normal schoolboy." 

After his university studies, Pajitnov took a position at the Mos- 
cow Institute of Aviation, a technical university, in the department 
of math applications. He enjoyed teaching there, but one day he 
abruptly quit. His passion for math had been replaced by some- 
thing new: by the universe he discovered in computers, where the 
exploration of numbers, games, programming languages, and 
mathematical logic had no limits. Thereafter computers consumed 
him. "It doesn't matter to a hacker what he is working on — it could 
be a game or an abstract math problem, but if a computer is 
involved, he is a god and can do whatever he wants inside that 
world." 

This new interest led to Pajitnov's next job, at the Computer 
Center of the Moscow Academy of Science, one of the Soviet 
government's preeminent R&D labs. His office at the Computer 
Center was in a wood-paneled room crowded with a dozen metal 
desks separated by chest-high partitions. There he hunkered over 



GAME OVER 



the keyboard of an archaic Soviet microcomputer, an Electronica 
60, spending long days and many nights drinking black coffee, 
smoking unfiltered cigarettes, and exploring artificial intelligence 
and the capability of the computer to recognize the human voice. 
Inevitably, he also created games and puzzles. 

To most of us, puzzles are a diversion, but for Alexey Pajitnov 
they are metaphors and mirrors that reflect nature, emotion, and 
patterns of thought. The young mathematician had turned to com- 
puters with the belief that they could model consciousness. Where 
better did electronics and humanity collide than in computer 
games? At their best, games were sublime examples of the inter- 
section of logic and humanity. They worked because of logic and 
mathematics, but also because of psychology and emotion. The 
best games held in them a challenge, but also a reward and certain 
elemental experiences: discovery, recognition, frustration, and 
completion. 

Inspiration for Pajitnov's games came at unexpected moments. 
Visiting an aquarium one day, he wandered past tanks of eels and 
seahorses, a shallow pool of starfish and anemones, and a large 
pool of rays, salmon, and sharks. He stopped in front of a tank of 
flatfishes and became transfixed there, staring at the liquid world 
of the flounder, plaice, and sole. The fish were barely distinguish- 
able from the rocks, sand, and sea grasses on which they rested. 
When a plaice glided over white gravel, it metamorphosed before 
his eyes, as if its orange spots had been bleached white. A brown- 
speckled flounder floated over a bed of kelp and turned a soft 
green. Pajitnov was mesmerized as he contemplated using nature's 
splendid invention in a puzzle; he envisioned chameleon pieces 
that hid by altering their colors or shapes. 

Another time, walking along a quiet boulevard, Pajitnov stopped 
to peruse a sidewalk display of imported knickknacks — porcelain 
dolls, paper umbrellas, and brass incense burners. From a clay pot 
he withdrew a Chinese fan. As he unfolded the pleats, what had 
been obscured was revealed: a crimson crane surrounded by 
golden flames. Laughing aloud, he imagined how fantastic it would 
be to re-create in a game the essential emotion of the experience — 
recognition. 



FROM RUSSIA WITH LOVE 899 



Pajitnov had read about Pentominoes, geometric puzzles de- 
signed by an American mathematician named Solomon Golomb. 
The puzzle pieces were formed out of different configurations of 
five squares (a line, a "T," an "L" shape, and so on). The pieces 
could be fitted together into a perfect rectangle. 

In a small toy shop, Pajitnov found a Pentomino puzzle. When 
he removed the dozen pieces from the rectangular case and mixed 
them up, he discovered that "it was a big problem" to put them 
back. He imagined a computerized version of the game in which 
randomly generated pieces would appear one at a time and with 
intensifying rapidity. An electronic version of Pentomino would 
require very quick thinking. He envisioned the puzzle pieces plum- 
meting down from computer heaven and the frantic attempt to 
arrange them. 

Sitting in front of his computer, Pajitnov experimented with per- 
mutations of Pentomino and finally settled on a simpler version, 
with each piece made out of four instead of five squares. From 
tetra, a form of the Greek word for four, he named the game 
"Tetris." 

There is a theory in psychology that humans can process seven 
things (plus or minus two) at once: seven digits, seven shapes, 
seven concepts. It is the reason most people can remember seven- 
digit phone numbers but have difficulty beyond that. It so hap- 
pened that seven different configurations of the four squares were 
possible. Seven "Tetris" shapes, Pajitnov reasoned, could be mem- 
orized and instantly recognized, and the reaction to any one of 
them could be almost visceral, reflexive. 

Since the Electronica 60 had no graphics capabilities, Pajitnov's 
puzzle pieces were actually spaces outlined by brackets. Generated 
by the computer and sent onto the screen, they would descend 
slowly at the easiest levels, fast and furiously at the most difficult. 
The player had until they reached the screen's bottom to turn them 
or move them so that they would fit snugly into a solid row when 
they landed. If the pieces did fit perfectly together and an unbro- 
ken row was formed, it disintegrated: success! If any spaces were 
left unfilled, however, that row became the beginning of a wall that 
would grow until it overtook the screen. 



300 GAME OVER : 

Pajitnov realized his game would be more fun if the computer 
code were translated into real-time graphics — that is, if the brack- 
ets delineating the "Tetris" pieces were replaced by the real, mov- 
able shapes they represented. A young hacker named Vadim 
Gerasimov set out to create a color version of "Tetris" that would 
play on IBM-compatible computers. 

Gerasimov was sixteen years old at the time and was still attend- 
ing high school, but he was so far ahead of his peers that his 
teachers allowed him to drop in for classes a couple of times a 
semester. Raised by his mother, a nuclear physicist, Gerasimov had 
a revelation when he got his hands on a computer for the first time. 
"He saw the computer and forgot about the other world," Alexey 
Pajitnov says. 

The wiry-haired Gerasimov, with enormous blue eyes behind 
thick-lensed glasses, was bean-thin and tall, with a slight stoop, and 
often wore the same shapeless gray wool sweater. Another 
programmer named Dmitri Pevlovsky introduced him to Pajitnov, 
who put the young boy to work. Gerasimov had a knack for finding 
glitches in programs, and had technical skills that neither Pevlov- 
sky nor Pajitnov possessed. He had taught himself to program with 
Microsoft's DOS operating system from the West. He knew the 
BASIC and PASCAL languages, and how to perform miscellane- 
ous feats on computers, breaking supposedly unbreakable copy 
protections and ferreting out viruses. Computer Center scientists 
twice his age asked for his help on programs, occasionally slipping 
the boy a few rubles. 

Gerasimov worked with Pajitnov for two months to convert 
"Tetris" to work on an IBM-compatible computer. In the end, the 
"Tetris" pieces lit up in solid colors. Pevlovsky added a table that 
tracked high scores. When the program was bug-free, he copied it 
and distributed disks throughout the Computer Center. His col- 
leagues congratulated him on his brilliant and addictive program. 
A friend who worked at a psychology institute gave the game to his 
staff, but soon realized that not much work was getting done be- 
cause of it. One night, after everyone had gone home, the man 
went from desk to desk collecting the "Tetris" disks and destroyed 
them all. 



FROM RUSSIA WITH LOVE 301 



All across Moscow the game was catching on in computer circles 
— "like a wildfire," says Pajitnov. In a computer-game competition 
held in Zelenodolsk, in November 1985, "Tetris" took second 
prize. 

Pajitnov worked on other programs, including one called Biog- 
rapher, a sort of therapist in a box. Information about someone's 
life was fed into the program, which revealed behavioral patterns 
and, in a crude way, drew conclusions. The program was a simple 
implementation of the idea that a computer could be more objec- 
tive and more patient than a human psychologist. Through early 
1986, Pajitnov continued to work on Biographer and other explo- 
rations of simple artificial intelligence. In the meantime, he sug- 
gested to one of his superiors that something should be done with 
"Tetris" outside the U.S.S.R. "We had no copyright laws at all," he 
says. "Certainly, by the spirit of our law we had no right to sell 
anything to anyone. We could do nothing for personal gain." It 
would, however, be a significant accomplishment to have a pro- 
gram published. 

Victor Brjabrin, who oversaw twenty researchers at the Com- 
puter Center, was particularly enthusiastic about "Tetris," and he 
sent an evaluation copy of the game to SZKI, the Institute of 
Computer Science in Budapest. Hungarian-born Robert Stein, 
who ran Andromeda, a software company in London, happened to 
be visiting SZKI at the time. 

Born in 1934, Stein arrived in Britain in 1956 as a political 
refugee. He first got work as an instrument- and toolmaker in 
London. Later he worked for Olivetti, selling adding ma- 
chines, then left that business to sell mechanical check-writing 
machines while studying marketing at night. In business school 
he discovered that he was as good at training as he was at 
selling, and he got a job teaching engineers how to communi- 
cate with clients. He consulted in this field for a while, serv- 
ing such major clients as Texas Instruments. After that he set 
up a company to sell TI calculators, and eventually sold digi- 
tal watches and the first television game, Atari's "Pong." 
When that company went bankrupt, Stein founded a new 
company to sell chess computers to Harrods and other depart- 



302 GAME OVER 



ment stores. The business grew when he started selling Com- 
modore's Vic 20 computer. He soon realized the computer 
sold in direct proportion to the amount of software available 
for it, which led him to the software business. 

When Commodore was preparing to introduce their C-64, a 
more powerful computer, they asked Stein to return to Hungary in 
search of innovative software. In 1982 he helped establish a soft- 
ware company there with Hungarian engineers. To sell their games 
and business programs, Stein founded Andromeda, which kept 25 
percent of whatever the Hungarian programs brought in. 

From his London office, Stein sold the rights to Hungarian 
products to Commodore and software companies in England such 
as Mirrorsoft, and he made a number of deals with Jim Macko- 
nochie, the man who ran Mirrorsoft for the Maxwells. 

In June 1986, Stein was at SZKI in Budapest to see Hungarian 
programs when, on a nearby computer, he noticed "Tetris." He sat 
down to try the game and couldn't stop playing. "I was not a game 
player," he said, "so if / liked it, it must be a very good game." He 
asked the director of the institute where the game had come from, 
and was told that it had been sent by a friend at the Computer 
Center of the Academy of Science in Moscow. 

The same day, Stein claims, he was shown another "Tetris," this 
one on a Commodore 64 and Apple II. It was the same game, Stein 
says he was told, adapted by Hungarian programmers. Although 
they had obviously converted the Russian program to the other 
machines, Stein says he told the Hungarians he would license the 
original PC game from the Russians and the Commodore and 
Apple versions from the Hungarians. 

Back in London, Stein sent a cable to the Moscow Computer 
Center indicating that he was interested in "Tetris." Victor 
Brjabrin saw the telex and delivered it to Pajitnov. "It looks like 
someone is interested in your game," he said. 

Since there was no one else to do it, Pajitnov began the negotia- 
tions himself. "We had no idea what to do," Pajitnov says. "It was 
an absolutely new experience for us." 

Answering the telex was comically difficult. Pajitnov's English 
was a little sketchy, so he composed an answer in Russian and 
showed it to the chief of the computer center, Professor Ju. G. 



FROM RUSSIA WITH LOVE 303 

Evtushenko, who had to sign an approval to have it translated. He 
then had to figure out how to send it. 

Pajitnov had no access to a telex machine, but he learned that 
there was one in another division of the Academy of Science that 
he might be able to use if he could gather the required authoriza- 
tions. His requisition had to be approved by his supervisors and 
half a dozen others at the Academy. It was weeks before he could 
send back the simple answer: "Yes, we are interested. We would 
like to have this deal." 

Stein was already shopping the game around. He had showed it 
to representatives of British and American software companies. 
His plan was to determine if there was interest, and then, if it 
seemed worth his while, to secure the rights; he assumed it would 
be easy to convince the Soviets to make a deal. As it happened it 
took more than a year finally to secure the rights to Tetris. On 
reflection, Mr. Stein thought that it would have been easier to use 
the Commodore 64 version produced by the Hungarians as a mas- 
ter source. 

Stein pitched "Tetris" to Jim Mackonochie at Mirrorsoft and to 
an American software company, Broderbund, but neither com- 
pany showed much interest in it. Mackonochie wasn't convinced 
the game would sell, so he showed it to the two men who ran 
Mirrorsoft's sister company in America, Spectrum Holobyte, tell- 
ing them he would license "Tetris" for Europe if they would do so 
for the United States and Japan. 

Phil Adam and Gilman Louie ran the California-based Spec- 
trum Holobyte, 80 percent of which was owned by Robert Max- 
well's Pergamon Foundation. Adam, with impeccably trimmed 
hair and fingernails and perfectly matched casual clothing (wool 
sweaters, khaki slacks, and oxford-cloth shirts), was a smart and 
well-liked manager of Spectrum Holobyte, which was known for 
its flight simulators. "Falcon," created by Gilman Louie, a com- 
puter whiz, was one of the best flight-simulation games available 
for PCs, and it sold more than half a million copies. Spectrum 
Holobyte went on to create a host of other computer games, in 
addition to simulators for the military. 

His tortoiseshell glasses pushed up on his thin nose, Adam sat 
down at three o'clock one afternoon in front of a computer on 



GAME DVER 



which "Tetris" had been booted. At seven, dinner companions 
who had been waiting for him for an hour came and literally had 
to unplug the computer in order to drag him away. 

Louie, tall and slender, his jet-black hair untamed, had thick- 
framed glasses and, behind them, a curious, decisive expression. 
He too played "Tetris" and loved it. After conferring with Adam, 
he told Mackonochie, "Put it in a red box and get the rights." 

According to Robert Stein, Mirrorsoft and Spectrum Holobyte 
bought all the "Tetris" rights except for the arcade and hand-held 
versions. From these companies, Stein got a small advance — about 
3,000 pounds — against a fluctuating royalty of between 7.5 and 15 
percent. 

In his next telex to the Soviets, sent on November 5, 1986, Stein 
offered a firm deal: the Russians would get 75 percent of whatever 
he collected for "Tetris." This sum would be a percentage of gross 
sales. He also offered a $10,000 advance. 

Pajitnov responded favorably to the offer in a telex on Novem- 
ber 13. Signed by the Computer Center's Evtushenko, it said that 
the Academy of Science was ready to transfer the copyright to 
Andromeda. In another telex, Stein had offered to pay the Com- 
puter Center, in part, with Commodore computers, and the Sovi- 
ets agreed to this as well. They also noted that the deal was for the 
IBM-compatible version of "Tetris" only; they would consider 
non-IBM versions of "Tetris" in the future. 

Alexey Pajitnov now claims he indicated only that the deal 
sounded good. He did not mean to give Stein a firm go-ahead. "I 
had no idea that this kind of polite telex can be a document," 
Pajitnov says. "I think of a document as something very serious 
which needs to be signed, changed, and signed again; then you 
shake hands and drink champagne." 

Stein paved the way for the signing of a contract in telexes to 
Evtushenko. The Academy of Science's licensing group, Licen- 
snauka Prasolov/AcademySoft, took over negotiations and sent 
Stein a cable in late December, inviting him to come to Moscow. 

When, much later, Stein did visit Moscow, he arrived with plans 
to talk to the people at the Computer Center about establishing a 
relationship similar to the one he had in Hungary: he would act as 
agent to sell Soviet-created software in the West. His immediate 



FROM RUSSIA WITH LOVE 305 



concern was to leave with a signed, legal contract that confirmed 
his rights to "Tetris." He met with a group of the Soviets in a hall 
at the Academy, a cavernous, poorly heated, ill-lit room, as grim 
as anti-Soviet propaganda in the West would have painted it. 
Down the center of the room was a massive wooden slab, a table 
that could have seated fifty, across which Stein faced six Russians. 
One of them was Alexey Pajitnov, the chain-smoking creator of 
the game. 

Trying to ally himself with Pajitnov, Stein said, "Gentlemen, in 
our country the most important person is the one who designs the 
game. I'm here to listen to his wishes, because if we don't sign a 
contract, it is he who will suffer." 

Stein also tried, unsuccessfully, to hide his eagerness. The con- 
tract he had drawn up was on the table in front of him, ready for 
the Russians to sign, so he was unprepared to be met with suspi- 
cion. 

The Soviets were swimming in uncharted waters — software li- 
censing was baffling— yet they made up for their naivete with cau- 
tion and obstinacy. If Stein offered 75 percent, they pushed for 80; 
if he offered $10,000, they held out for $25,000. They asked for 
protections and limitations. The details were hammered out over 
several days of meetings, but Stein, although he caved in to their 
demands for a higher advance and royalty, left Moscow without a 
signed contract. 

The Russians had tried Stein's patience, and he wondered 
whether the Mirrorsoft and Spectrum Holobyte people should 
abandon the PC version and use the Commodore 64 version cre- 
ated by the Hungarian programmers, which they had licensed si- 
multaneously with the PC version from the Russians. Stein later 
said that the biggest mistake he made was that this did not hap- 
pen. 

But it was too late for that. Mirrorsoft and Spectrum Holobyte 
had seen great value in the fact that "Tetris" was the first game to 
come from behind the Iron Curtain, which was still intact at the 
time. As Gilman Louie had suggested, they slickly packaged 
"Tetris" in a red box, emphasizing that it was from Russia with 
love. Atop an illustration of St. Basil's Cathedral, "Tetris" was 
written in Cyrillic, the final character taking the form of a hammer 



306 GAME OVER 



and sickle. Programmers at Spectrum Holobyte in the United 
States added battle scenes as background pictures and a simple 
animation that played at the start of the game: a Cessna flew 
across the screen and landed in Red Square. It was a homage to 
Matthias Rust, the young West German pilot who had flown his 
small plane from Helsinki to Moscow, past all the Soviet radar and 
air defenses, and landed in Red Square, embarrassing the Central 
Committee. Rust had been arrested, tried, and imprisoned. 

Other modifications to the program were made. One was the 
addition of a "boss button" to some versions of "Tetris"; when a 
certain key was pushed, the game instantly disappeared and the 
computer would appear to be running a serious accounting pro- 
gram. Also added were high-quality graphics, and, for computers 
with sound-generation capabilities, music. 

In April 1987, Stein informed the Soviets that the rights to 
"Tetris" had been sold to Mirrorsoft, the Maxwell Communica- 
tions software company, and to its American counterpart, Spec- 
trum Holobyte. He specifically noted that the rights were only for 
the IBM PC (and compatible) versions of "Tetris." By then he had 
given up plans to license separate Apple and Commodore versions 
of the game from Hungary, and he noted that there would be 
separate advances for those versions when they were launched. He 
pressed for a contract to be signed. 

In June, Stein signed the contract he had negotiated among 
Andromeda, Mirrorsoft, and Spectrum Holobyte. The contract 
designated that he was selling the "Tetris" rights for the IBM PC, 
although the rights included "any other computer system." In ad- 
dition to warranting that the work had no obscene or indecent 
material, Stein confirmed that he was the rightful owner of the 
copyright, free to grant the license, although there was still no 
contract with the Soviets. 

In a letter sent to the Academy of Science in December, Stein 
pleaded with the Soviets to confirm his rights to "Tetris," and 
offered "to travel anywhere and meet anybody" in order to get a 
signed contract. If nothing else, he wrote, "we need a simple letter 
stating that you approve the terms under which we have signed 
this contract with Mirrorsoft." 

Mirrorsoft and Spectrum Holobyte, unaware of Stein's troubles, 



FROM RUSS I A WITH LOVE 307 



released "Tetris" for personal computers in Europe and America 
in January 1988. It sold well in computer stores and received rave 
reviews. 

A reviewer for The Times Educational Supplement quoted from 
the Mirrorsoft press material and wrote, "Another 'remarkably 
simple, addictive, abstract puzzle game' doesn't fill me with excite- 
ment, but the provenance of this one is interesting. It was invented 
by a 30-year-old researcher at the USSR Academy of Sciences. 
Coding was done on an IBM personal computer by a teenage 
student at Moscow University." Many British computer journals 
heaped on praise. "I warn you. The addictive power of 'Tetris' is 
frightening," a reviewer wrote. "It sounds so simple that you can- 
not believe your abysmal score, so you try again and again; only a 
manic lunge at the reset switch can save you." Another reviewer 
called it, "a stonking good game," reporting that it had been 
banned from the PCs at Mirrorsoft's central office, "and no doubt 
it will be banned elsewhere." Yet another reviewer concluded, 
"There are very few games that are so addictive you find yourself 
playing them in your sleep, but Tetris' did exactly that for me. 
. . . After a poor night watching shapes float down past my closed 
eyelids, I had to be firm with myself and refuse to play it again for 
at least 48 hours. I cannot give a higher recommendation." 

In Moscow, meanwhile, Pajitnov was busy with his day-to-day 
tasks at the Computer Center. A version of Biographer was work- 
ing well; he wondered if it could be sold as educational software. 
In discussions about it, he met with a newly created Soviet organi- 
zation called Elorg— short for Electronorgtechnica, the ministry 
for the import and export of hardware and software. In his meet- 
ing with an Elorg director named Alexander (Sasha) Alexinko, 
Pajitnov mentioned the difficulties he was having licensing 
"Tetris." Alexinko interrupted him. Licensnauka and the Academy 
of Science shouldn't be negotiating at all, he said. They were aca- 
demic institutions, which were forbidden to indulge in commerce. 
This was Elorg's domain, and Alexinko said he would take over 
the "Tetris" negotiations. 

Examining the communications between Moscow and London, 
Alexinko concluded that Pajitnov had blundered in his negotia- 



3Q8 GAME OVER 



tions, and that his telexes could have been misinterpreted. Now 
the inventor became the target of blame. "You allowed this game 
to be published without our approval," he was told. "We must stop 
it now." 

Stein, further and further out on a limb, having sold the rights 
to a game he didn't own, now heard from Elorg. It was taking over 
"Tetris" negotiations, and his deal was off. The Soviets were going 
to take over the international sale of "Tetris" directly. 

Backed into a corner, Stein composed a carefully worded memo 
to Moscow. He threatened to create a scandal for the Soviets. It 
would look very bad, he said, if the Soviet state stopped a com- 
mercial deal at this point; it would be extremely embarrassing in 
the international community. On the other hand, here was a 
chance, he pointed out, to begin an alliance that could be politi- 
cally and economically significant. A deal had to be consummated. 

Stein and Elorg tested one another with tentativeness, straining 
over minor points, but finally agreed that a deal could be made. 
Stein flew to Moscow to meet with Elorg's Alexinko in late Febru- 
ary 1988. On February 24, a written contract was proposed that 
included a stipulation that Elorg had to approve any versions of 
"Tetris" created in the West. It also gave Andromeda the right to 
adapt "Tetris" to "different types of computers." 

Stein and the Soviets negotiated for four days to finalize a con- 
tract. Even after this there was long-distance fine-tuning for sev- 
eral months until finally, after almost two years' worth of draft 
agreements, one was signed in May 1988. Stein breathed an enor- 
mous sigh of relief: he had successfully confirmed his exclusive 
rights to sell "Tetris" for computers. In a memo, he told Mirror- 
soft that the contract included "TV games," but excluded coin-op 
(arcade), hand-held games, and other concepts "which we did not 
dream about yet." 

In the meantime, "Tetris" had become the best-selling game in 
England and the United States, publicized by word of mouth and 
on computer networks. In the United States, in 1988 "Tetris" re- 
ceived the Software Publishers Association award in two catego- 
ries: Best Original Game Achievement and Best Entertainment 
Program. 



FROM RUSS I A WITH LOVE 309 



An article about "Tetris" from a London computer magazine 
reached Elorg in Moscow. It described the version of "Tetris" 
that was being sold in the West. It mentioned the graphics— the 
battle scenes and the image of Matthias Rust flying his plane 
across the Russian sky and into Red Square. Alexinko showed 
the article to Pajitnov, who was amused by the reference to 
Rust. He was not amused, however, by the battle scenes. 
Pajitnov had come to view "Tetris" as a small but meaningful 
bridge between cultures at a time when the Cold War was thaw- 
ing. "Tetris" was a game of the intellect, completely nonviolent. 
He informed Stein that he wanted "Tetris" to be "a peaceful 
game heralding a new era in the relationship between superpow- 
ers and their attitude toward world peace." The bureaucrats in 
Moscow were far more concerned about the reference to Rust. 
The Central Committee viewed the young pilot as a terrorist 
and did not consider the invasion of its air space a practical 
joke. Broadcast around the world, Rust's "raid" had been a 
great humiliation. 

The Soviets expressed their "grave concerns" in their next 
meeting with Stein, who immediately contacted Jim Mackonochie. 
"It would be useful if all battle scenes, as background pictures, 
would disappear," he wrote, "and planes flying across the title 
screen . . . would be omitted." As a result, Mackonochie and 
Gilman Louie revised their games again. 

Stein felt the Soviets had to be placated as much as possible if 
he was going to be able to obtain other "Tetris" rights that Mirror- 
soft wanted, particularly the coin-operated and hand-held rights. 
Atari Games was already preparing to release its own "Tetris" 
arcade game in America, and it had sold the rights to Sega to 
release the arcade game in Japan. (Mirrorsoft had gone ahead and 
sold Atari Games the right to do this based on Stein's assurance 
that they were forthcoming.) Stein, however, was in the midst of 
another sluggish negotiation. He had made a firm offer for the 
coin-operated rights in July 1988— a guarantee of $30,000 as an 
advance against royalties— but there had been no response. 

Stein telexed a month later, noting that he was being "pres- 
surised" and needed an agreement by mid-August. 
Alexinko met with Stein in Paris on July 5. While Stein pushed 



31D GAME OVER 



for more rights, especially the coin-op rights, the Russian had an- 
other agenda. He intended to register his dissatisfaction with the 
results of the deal that had already been signed because no checks 
were coming in from Andromeda. 

Stein explained that it took time for money to be dispersed from 
company to company, but promised he would do what he could to 
expedite the royalty payment process. Alexinko wanted a penalty 
for late payments to be agreed upon, and threatened to withhold 
any new rights until the situation was remedied. 

More telexes were fired back and forth between Stein and Alex- 
inko after they had returned to their home bases. Stein implored 
the Russians to grant him the coin-op deal, while Alexinko, re- 
sponding in a tersely worded telex, indicated that the existing deal 
was not satisfactory "because no payment is effective yet," even 
though "Tetris" had been "more than six months on the market." 

In another telex he asked Stein to add a clause to the original 
agreement that stated that a 5 percent fee would be charged 
monthly for late payments. Alexinko insisted that this clause was 
important "to expedite the positive decision" regarding the 
"Tetris" coin-op rights. 

Stein sent word that he agreed, and once again begged Alexinko 
to sign a coin-op contract because "someone will steal the product 
from under our noses." 

Typically, a company that licenses a game will exploit those 
rights as much as possible with sublicenses to other companies for 
other markets. Spectrum Holobyte and Mirrorsoft had a hit game 
on their hands, and it was not surprising that they set about to sell 
all the sub-rights they could. The chart of "Tetris" licenses and 
sublicenses was beginning to look like a tangled family tree. 

Henk Rogers, who had seen Spectrum Holobyte's computer 
game at an electronics trade show in January 1988, went after the 
rights to release the game in Japan on computers, video-game 
systems, and coin-op arcade machines. Since Spectrum Holobyte 
had been granted the rights for Japan in the deal with Stein, Rog- 
ers negotiated with Gilman Louie. Two separate deals— one for 
computer-game (floppy-disk) rights, another for video-game rights 



FROM RUSSIA WITH LOVE 31 1 



— were agreed upon. Rogers also wanted the coin-op game rights, 
but discussions for these were put on hold. 

The day after Rogers signed a deal with Spectrum Holobyte for 
computer-game "Tetris" rights for Japan, which was the day before 
he was to sign a deal for the Japanese home video-game rights, 
Gilman Louie called Jim Mackonochie in England to report on 
the deal. Mackonochie "had a fit," Louie remembers. The Mirror- 
soft chief told Louie it was impossible for Spectrum to go ahead; 
he had already sold those rights to Atari Games. Hide Nakajima 
was getting "Tetris" rights to North America and Japan in ex- 
change for worldwide rights to an Atari game called "Blastroids." 
Gilman Louie hit the roof. "What are you talking about?" he 
shouted. "Those are my rights^ 

Louie argued that not only were all the Japanese and American 
"Tetris" rights his, not Mirrorsoft's, but Mackonochie was making 
a terrible deal; "Blastroids" was an atrocious game. Besides, he 
said, he had made a terrific deal with Henk Rogers. 

Mackonochie explained that there was nothing Louie could do. 
The Maxwells had financial control of both Mirrorsoft and Spec- 
trum Holobyte, but both men knew that the family had far greater 
interest in Mirrorsoft, which was personally overseen by Robert 
Maxwell's son Kevin. Kevin Maxwell supported Mackonochie's 
deal, so Louie was out of luck. 

Louie insisted that he at least had to honor the deal he had 
already signed; Henk Rogers had to be able to have the sublicense 
for the floppy-disk game in Japan. Since it was the least valuable 
of the rights under discussion, Mackonochie agreed. 

Atari Games' agreement with Mirrorsoft was not actually signed 
until May 30, 1988, only two weeks after Stein's initial deal with 
the Russians was signed. Hide Nakajima planned to exploit the 
"Tetris" rights in as many ways as possible. In the United States he 
planned to release both a coin-op "Tetris" and an NES version 
under the Tengen label, and he planned to sublicense these rights 
in Japan. 

Gilman Louie called Henk Rogers to apologize; he explained 
that unbeknownst to him, Atari Games had been awarded the 
"Tetris" video-game rights for Japan and the United States. Rog- 



312 GAME OVER 



ers's floppy-disk rights were secure, but if he wanted the other 
Japanese rights, he would have to negotiate with Atari Games. 

Rogers tried, contacting Randy Broweleit and Hide Nakajima. 
Broweleit said the coin-op rights for Japan were gone; they had 
been sold to Sega. Dejected, Rogers said he would at least like to 
secure the rights for "Tetris" on Japanese home video-game sys- 
tems, including Nintendo's Famicom. What, he asked, would he 
have to do for these? 

Broweleit was noncommittal, so Rogers went directly to 
Nakajima. The two men had dinner on August 16, 1988. It took 
until October to hammer out a deal. As far as he knew, Rogers 
had finally sewn up the rights to sell "Tetris" in Japan, not only for 
computers but also for the far bigger market, Nintendo's Famicom 
and other home video-game systems. 

Now Rogers headed to London for a meeting at Mirrorsoft. He 
brought videotape copies of versions of "Tetris" for the Russians 
to approve. After the meeting, Rogers returned to Japan, where 
he received a faxed go-ahead to produce his game from a Mirror- 
soft attorney. 

Rogers's "Tetris" for PCs was launched in Japan in November 
1988. A month later he shipped his version for the Famicom. 
Tetrismania quickly swept Japan, just as it had the United States. 
Two million copies of the game were sold there. 

By now Minoru Arakawa had decided that he wanted "Tetris" 
for Game Boy. His lawyers had figured out that Mirrorsoft was 
probably tap-dancing around the fact that it didn't have the rights; 
indeed, it was possible that no one owned the hand-held rights. 
That is when Arakawa decided it might be beneficial to try other 
avenues to get the game. In a meeting with Henk Rogers, 
Arakawa made an offer. If Rogers could get the hand-held rights, 
NOA would take out a sublicense from him. Rogers was let in on 
the still-secret reason that Arakawa wanted "Tetris": he was 
shown a prototype of Game Boy. 

For all Rogers's impressive insight into game play, he was sharp 
about the business side of video games as well. When Arakawa 
challenged him to get the hand-held rights to "Tetris," the younger 
man viewed it for what it was: a potential fortune. "If you've met 



FROM RUSSIA WITH LOVE 313 



Rogers, you know that he is capable of finding his way in the 
middle of any storm," Howard Lincoln says. "Telling him that we 
were ready to license from him was like showing red meat to a 
hungry lion." 

Henk Rogers faxed Robert Stein in London on November 15, 
1988. He wanted to bid for the worldwide hand-held rights to 
"Tetris." Stein responded that he was trying to get the rights from 
Elorg, but the agency had not made a decision about them. He 
was close to pinning them down, however, and would get back to 
him. 

Stein immediately wrote Jim Mackonochie. "We must go for 
those rights immediately," he said. But Stein had new worries. In 
late 1988 he received a telex that informed him that Sasha Alex- 
inko had been replaced at Elorg. The reasons for his departure 
were unclear — he ended up leaving Elorg to found his own trading 
company, and there was speculation that he used his government 
work to set up the company— but there was nothing ambiguous 
about the character of his replacement, the vice-director of Elorg, 
Evgeni Nikolaevich Belikov. Belikov, large-framed, slightly bald- 
ing, and red-cheeked, was described by some who knew him as 
vicious, cutthroat, and bullheaded, and by others as savvy, amia- 
ble, and razor-sharp. All, however, agreed that he was a worthy 
adversary in any negotiation. 

In late 1988 Belikov became the man to charm, outmaneuver, 
or otherwise win over in all future "Tetris" deals. It was easier said 
than done. As Alexey Pajitnov discovered, "He is an excellent 
actor." Stein found him "instantly dislikable; a creep." 

Rogers continued to try to push Stein to get him the hand-held 
"Tetris" rights. Many calls, letters, and faxes later, however, he 
came to the conclusion that Stein was useless. His only chance to 
get the rights was to head directly to Moscow, which he did, in 
February. But he wasn't the only one to do so. 

Kevin Maxwell helped run his father's empire, then thought to 
be the tenth-largest media concern in the world. In addition to 
newspapers with circulations that totaled in the tens of millions, 



GAME OVER 



he looked over such companies as Marquis, Thomas Cook Travel, 
Berlitz language schools, and MTV Europe. He also oversaw 
Maxwell's electronic-media companies — that is, on-line networks 
and the computer software company Mirrorsoft. This made him 
Jim Mackonochie's boss. 

Kevin, a graduate of Balliol College at Oxford and a serious, 
morose workaholic, had spent his entire life working in the family 
companies. His brother Ian Maxwell had once lost his job with the 
Maxwell organization because he chose to meet a girlfriend in 
Paris rather than show up at the airport for a meeting with his 
father. That was a choice Kevin Maxwell would never have 
thought to make. 

Like his father, Kevin tended to be inaccessible when his top 
executives needed his input, though he would meddle on a whim. 
And, like his father, he was short-fused and inclined to tantrums, 
tending to jump when it might have been prudent to think. 

From the beginning, Kevin Maxwell had kept tabs on the 
"Tetris" negotiations in consultation with Jim Mackonochie. 
When negotiations got so bogged down that Mackonochie decided 
to go to Moscow himself, Maxwell stepped in. He was going to 
Moscow anyway, he said, and he could easily straighten things out 
with the Soviets. 

Robert Stein, frustrated because he couldn't nail down the 
rights to "Tetris" for hand-held or coin-operated games, worried 
because there were already coin-operated versions being sold in 
the United States and Japan, and under pressure from Henk Rog- 
ers, realized that he also had to head to Moscow again. Unbe- 
knownst to one another, the three men flew to the U.S.S.R. at 
exactly the same time. 



\ x 14 

THE "TETRI5" \> 

5DNB ^ 



Alexey Pajitnov could tell instantly that Henk Rogers was a man 
after his own heart. Of all of those he had dealt with, from Stein to 
the bureaucrats at Elorg, Rogers was the only one who seemed to 
truly love "Tetris." He was a hacker, he spoke the language of 
games, and he understood the pure beauty of the "Tetris" design. 

Elorg and the Academy both hoped to establish a relationship 
with someone from the West other than Robert Stein. Of course 
they also wished to make as much money as they could, so when 
Rogers appeared in Moscow, after tracking down Pajitnov through 
chess players and computer hackers, the Russians had a second 
bidder and leverage against Stein. 

For his part, Rogers was surprised by how naive the Soviets were 
about licensing deals. "Whoever they had been doing business with 
obviously didn't explain what the world looked like," he says. The 
jargon was unfamiliar to them, and he could have snowed them. At 
their first meeting at Elorg, he accepted the coffee the Soviets 



316 GAME OVER 



offered. Sounds echoed in the unadorned, chilly room. Rogers did 
most of the talking. Before he knew it, he was walking the Soviets 
through the video-game business as if he was teaching a course. 

When the meeting ended, Pajitnov and Rogers struck up a con- 
versation and ended up having dinner together at a restaurant. 
Then Pajitnov invited Rogers back to his apartment to show off 
other software he had been working on. It was an evening of frank 
discussion and good cheer. Pajitnov, suspicious of all the Western- 
ers trying to get pieces of "Tetris," found that "the most important 
thing about Henk was that he didn't ask for protection in the deal. 
He offered me nothing and asked for nothing." 

The following day, at Elorg, Rogers presented an offer for the 
hand-held rights to "Tetris." The deal was ironed out within a few 
days, and signatures confirmed it on February 21. 

Delighted, Rogers promised an advance check right away. He 
also assured the Russians that the royalties would be significant; 
hand-held "Tetris" would bring them a substantial amount of 
money. In a celebratory mood, he mentioned that he had brought 
with him a copy of the home video-game version of "Tetris" he was 
selling in Japan. The Russians looked at one another dumb- 
founded as he produced from his briefcase the brightly packaged 
Nintendo game cartridge and proudly passed it around the room. 

Sitting on the edge of his seat, Nikolai Belikov spoke first. 
"What is this game?" he asked. 

Rogers explained that it was his "Tetris" game for the Famicom, 
the video-game system made by Nintendo in Japan. 

The Russians had never heard of Nintendo. 

Rogers reminded the group that they had seen and approved a 
videotape of the game. 

Belikov shook his head. "We have approved nothing. We never 
licensed anybody to make this!" he snapped. 

The mirth evaporated, and Rogers realized he was in trouble. 
Stammering, he told the Soviets, "But I bought those rights from 
Tengen. I paid lots of money for them!" 

Belikov's fists rested on the table. "We don't know this company 
Tengen," he said. "We do not understand." 

It dawned on Rogers that the license he had bought from Atari 



THE "TETRIS" SONG 317 



Games/Tengen to market "Tetris" for the Famicom was, as he said 
later, "a sham." 

Rogers now recounted to the Soviets his negotiations for the 
home video-game rights that began with Spectrum Holobyte and 
ended when he was told that Atari held the rights. He said he had 
negotiated with Atari over the course of more than six months, and 
reported that Atari had announced that it was releasing a home 
video-game version of "Tetris" for the Nintendo system in Amer- 
ica. But there was more: Atari had also sold a company called Sega 
the rights to create an arcade version of "Tetris" in Japan. 

The Soviets were speechless. "An arcade game has been sold?" 
Belikov asked. Rogers nodded. 

Belikov finally spoke in Russian, uttering instructions to an assis- 
tant, who disappeared for a few minutes while Belikov told Rogers, 
"We have not licensed anyone to make Tetris' on home video- 
game systems or coin-operated games. I will show you." 

The assistant returned with a tall stack of documents, which he 
set on the table. Belikov flipped through the papers until he came 
to a copy of Elorg's contract with Robert Stein. He pored over the 
pages for a few minutes, and when he found what he had been 
looking for, set the document on the table and pointed with his 
forefinger to the paragraph explicitly stating that the rights granted 
to Robert Stein's Andromeda Software were for the IBM PC and 
other computer systems. 

Rogers was as shocked as the Soviets were, but his immediate 
concern was to hold on to the video-game rights that he had just 
secured. He said he must have been lied to, and that he wanted to 
make things right with the Russians; pending negotiations, he 
would pay them directly for all the games he had sold so far. 

Belikov indicated that this offer was acceptable, but that they 
would adjourn for the day. Rogers was to return in the morning, 
and an arrangement would be negotiated then. 

When Rogers returned the next day, he came with exact calcula- 
tions of the number of Famicom cartridges he had sold and offered 
to pay what amounted to a second royalty on the 130,000 car- 
tridges. He immediately wrote a check for $40,712, representing a 
portion of that. 



31B GAME OVER 



Meetings continued for the next few days, during which Rogers 
examined the Soviets' documents on the deal with Andromeda. He 
was convinced that the Russians had never — intentionally, at least 
— sold the video-game rights. The upshot of the meetings was an 
offer from Belikov: Rogers had three weeks to determine whether 
he wanted to make a proposal directly to them for all the home 
video-game rights to "Tetris." 

Rogers warned, "There will be trouble." The companies that 
were selling "Tetris" rights with abandon — Mirrorsoft and Atari 
Games — were heavyweights. He said he had a plan: he would re- 
turn with a partner who not only had an enormous amount of 
money but clout enough to fight them. This partner, the company 
that had control of the largest market for video games in the world, 
was Nintendo. 

Robert Stein had raced to the Elorg office that morning in a taxi 
from the Hotel Kosmos. Exhausted from travel and from the pros- 
pect of renewed negotiations, he waited obediently in a small 
room, where a rickety table held only a pitcher of water and a 
glass. 

Finally Belikov, Elorg's new negotiator, stormed into the room. 
He refused to engage in small talk, but simply threw a document in 
front of Stein and told him to sign it. 

Stein asked what it was. "We already have a contract," he 
pointed out. 

Belikov explained that this was an amendment to the contract. 
Confused, Stein said he didn't understand; he was in Moscow to 
negotiate for the hand-held and coin-op rights to "Tetris," not to 
sign a new contract. 

Belikov held firm; he would continue negotiations only if Stein 
signed the paper. 

Stein examined it. It was an addendum that noted that it and the 
original contract were to be read as one. Concentrating on the 
payment schedules and fluctuating percentages, Stein's eye 
skipped over one line that defined computers, as referred to in the 
original contract, as "PC computers which consist of a processor, 
monitor, disk drive(s), keyboard and operation system." He was 
told that the one-page document — alteration no. 1 — was to amend 



THE "TETRIS" SONG 



the contract signed the previous May, which was why it had been 
backdated to May 10, 1988; it would be effective as of that date. 

Stein returned to his hotel to study the amendment. It seemed to 
him that the most important item was about the assessment of 
penalties for late payments of royalties. He knew the Russians 
were concerned that money had not arrived frequently enough. 
The amendment was, in these circumstances, understandable. 
Though he read and reread the paper, he was unconcerned about 
the innocuous line clarifying the definition of computers. Later he 
deduced that everything in the document other than this line was 
"a smoke screen." 

"Henk Rogers orchestrated it for Nintendo," Stein believes. 
"He advised the Russians." The charade was all designed to take 
away most of his rights and offer them to Nintendo, which 
swooped in and snatched them. 

Stein returned to the Elorg office the following day. He had no 
problem with the amendment, he announced, but said that he 
would not sign it unless the deals for the other rights were made. It 
was the only leverage he had. He had drawn up by hand an offer 
for the coin-operated and hand-held "Tetris" rights, and he pre- 
sented it to Belikov. In the document he included minimum guar- 
anteed sales, advances, and percentages of royalties, but it was, 
Stein says, "a mockery. They knew what they were going to do 
before I arrived." He was told he could not secure hand-held rights 
at this moment, but he could have the coin-operated rights. He 
would have to pay dearly for them; within six weeks he had to 
come up with an advance of $150,000 or the deal would be off. He 
signed the contract and the amendment two days later, on Febru- 
ary 24, 1989. 

Oozing charm and self-importance, Kevin Maxwell was also at 
Elorg on February 22, meeting with the Soviets in a small room. 
He, Stein, and Rogers might well have run into one another in an 
Elorg hallway that day. 

After small talk, Maxwell asked Belikov why the deal for coin- 
operated and hand-held "Tetris" rights was taking so long to settle. 
But Belikov had another agenda. Reaching into a sack, he with- 
drew, as a magician might reveal a rabbit from a hat, a video-game 



320 GAME OVER 

cartridge and placed it on the table. "What is this, Mr. Maxwell?" 
he asked. 

Maxwell reached for the cartridge — Henk Rogers's Japanese 
video-game version of "Tetris" — and examined it. He had no idea 
that his own company had licensed the game via a sublicense to 
Atari Games, so he shrugged. Then the Russian asked him to look 
at the copyright notice on the cartridge. It read "Elorg, Mirrorsoft, 
and Tengen." 

Maxwell said that Mirrorsoft had not licensed home video-game 
rights to "Tetris," so the cartridge must be a pirated game. 

It was a crucial error. As a result, the Russians decided once and 
for all that they could maintain that Mirrorsoft had no right to the 
home video-game version of "Tetris." 

Unaware of the gravity of the situation, Maxwell returned to his 
own agenda, the coin-op and hand-held "Tetris" rights. Belikov 
excused himself and disappeared for a while. When he returned, 
he told Maxwell that he would sign a "protocol agreement" prom- 
ising Mirrorsoft the right of first refusal on ancillary rights to 
"Tetris" — including coin-op, hand-held, and merchandising rights 
— contingent on Maxwell's assurance that he would make an offer 
for the video-game rights within one week. "We must clear up the 
matter of this pirated cartridge," Belikov said. "Therefore we must 
have a deal within a week." 

A protocol agreement was signed guaranteeing Mirrorsoft the 
right to bid on all remaining "Tetris" rights, even though the coin- 
op and hand-held rights were simultaneously being granted to 
Henk Rogers and Robert Stein. In exchange Elorg would get the 
rights to publish in the Soviet Union Maxwell Communications 
properties, such as Collier's Encyclopedia and other reference 
books. The Soviets may not have known much about the video- 
game business, but they demonstrated their uniquely effective 
method of negotiating. Their juggling of Rogers, Stein, and Max- 
well had put them back in a position of complete control. 

The upshot of Belikov's busy week was a deal for the hand-held 
rights for "Tetris" with Henk Rogers, plus a chance for a new deal 
within three weeks on the home video-game rights with Nintendo. 
He had a signed deal for coin-operated "Tetris" with Stein and the 
promise of a check for $150,000. Kevin Maxwell had given Elorg 



THE "TETRIS" SONG 321 

more than the rights to publish Maxwell Communications refer- 
ence books: he had characterized the "Tetris" game his company 
had licensed as a pirated game instead of insisting that Mirrorsoft 
had licensed the games from rights it held— thus supporting 
Elorg's position that it had never sold the video-game rights in the 
first place. If Mirrorsoft wanted those rights now, it would have to 
outbid Nintendo. It was not a bad week's work. 

A letter was drafted to Henk Rogers on February 24 confirming 
that Elorg had not granted anyone the license "to make, have 
made, duplicate, market, distribute, sell or in any way use" "Tetris" 
for use on "video games or TV games or game consoles, which are 
defined as computers which have no keyboard." 

Looking back on the week in Moscow after the fact, Robert 
Stein said that his only satisfaction was knowing he emerged from 
the meetings with the coin-op rights while Kevin Maxwell emerged 
with nothing but worthless paper. Otherwise, he said, the week was 
a disaster, the product of lying, cheating, and back-stabbing. It was 
impossible, he said, for the Russians not to know about the BPS 
Nintendo game before Rogers showed it to them; he claimed he 
had provided Elorg with a copy of Rogers's videotape back in 
December 1988. He concluded that he had been set up, and that 
the amendment, the lies, and Kevin Maxwell's admission about the 
Japanese "Tetris" cartridge all cleared a path for the Russians to 
double-deal him. "I was set up because of stupidity," he says, "but 
also because I was under tremendous pressure to walk away with a 
contract for coin-operated games because Atari Games and Sega 
were already selling them all over the world without a contract." 
He insists that Jim Mackonochie and Mirrorsoft had put him in the 
position of "signing my life away" by knowingly selling rights they 
didn't own, and that he was forced to cover Mackonochie's tracks. 

Bitterly, Stein says, "I will never know if Jim Mackonochie is a 
good friend or if he knew he was screwing me. Maybe he was just a 
corporate animal. The fact is, he went right behind my back. I was 
fighting for my bloody life and he screwed me, acting as if the coin- 
op license was already theirs, so that if I didn't get it for them I 
would be sued out of existence. Then"— he shakes his head wearily 
—"he concealed from me the fact that Kevin Maxwell was in the 
next room burying me, burying us all." Now Stein finally under- 



322 GAME OVER 

stood why Belikov kept disappearing in the middle of their meet- 
ings. 

Henk Rogers tied matters up in Moscow and quickly returned 
home, where he called Minoru Arakawa. His news was better than 
anyone could have hoped for. First, he had the hand-held rights to 
"Tetris," and Arakawa's deal with him gave Nintendo the rights to 
"Tetris" for Game Boy. (He retained the rights to sell "Tetris" on 
other electronic hand-held machines, such as the Sharp Wizard.) 
Reportedly he would receive $1 for every "Tetris" sold with a 
Game Boy system, and more for games sold separately. This deal 
was worth between $5 million and $10 million to Rogers. 

Best for Nintendo, however, was the news that the Russians 
claimed never to have sold the "Tetris" home video-game rights to 
anyone. The rights that Robert Stein had sold to Mirrorsoft and 
that Mirrorsoft had sold to Atari Games and BPS were, according 
to the Russians, bogus. 

Rogers was covered whatever happened — he had Japanese 
"Tetris" rights from Atari Games or Nintendo, whoever ended up 
with them — but the beauty of the new development was that Nin- 
tendo could almost certainly have "Tetris" for the rest of the 
world's home game machines. Potentially this represented tens of 
millions of dollars and, for Arakawa and Lincoln, something even 
more delicious: the pleasure of depriving their old friend Hide 
Nakajima — the friend who, they felt, had betrayed them — of those 
potential millions. Revenge, Lincoln admits, was a prime mo- 
tivator. There were no second thoughts: he and Arakawa would do 
whatever it took to get the home video-game rights. 

Lincoln and Arakawa decided to send Rogers back to Moscow, 
this time with a lawyer. Lincoln called around and learned about 
John Huhs, a New York attorney who had worked in the Soviet 
Union. Huhs, who had been part of the Nixon White House, spoke 
fluent Russian, and, although he knew nothing about video games, 
was a talented international lawyer. Lincoln gave him a crash 
course on the phone before Huhs set out to meet Rogers, who was 
already en route back to Moscow. 

After an initial meeting at Elorg, Rogers and Huhs made an 



THE "TETRIS" SONG 323 

offer for the home video-game rights to "Tetris" on behalf of Nin- 
tendo. Included in the offer was an astronomical guarantee. The 
tough Soviet negotiators betrayed amazement over the figure. 
Arakawa wanted to be sure of clinching the deal; no one — not 
Atari Games, not even Robert Maxwell— was likely to touch the 
number he had authorized Huhs and Rogers to offer. 

The same day, March 15, Elorg sent a telex to Mirrorsoft, noting 
that Mirrorsoft had promised to give Elorg its proposal for home 
video-game rights to "Tetris" within a week of the meeting with 
Kevin Maxwell in Moscow. As it was well past that week and Elorg 
had a competing proposal valid only until March 16, Mirrorsoft 
had one day to make an offer. 

By design there was no chance for a Mirrorsoft bid. Elorg had 
elicited it in such a way as to address Maxwell's right of first refusal 
because it had been guaranteed in the protocol agreement. As 
planned, there was no response within that day, and so the path 
was cleared for Nintendo. Rogers and Huhs placed a call to Red- 
mond. Huhs was convinced the deal could be signed and sealed if 
Lincoln and Arakawa could come to Moscow by Monday. He said 
they should head first to Washington, where their visas would be 
waiting at the Soviet consulate. 

Arakawa and Lincoln told only Peter Main and Phil Rogers 
where they were going, for they were concerned that Atari Games 
would discover their destination. Everyone else at Nintendo 
thought they were going to Japan. To reach the consulate before it 
closed for the weekend, they had to fly to Los Angeles from Seattle 
and then take a red-eye to Washington. Arriving there at dawn, 
they checked into a hotel, showered, dressed, and hopped a cab for 
the office of the Russian consul general. There, in the visa office, 
the agent in charge had never heard of an Arakawa, or a Lincoln, 
or Nintendo. There had been no communication from Moscow, 
and without it a visa could not be given. All the Nintendo chiefs 
could do was wait. At 4:00 p.m. a telex finally arrived authorizing 
the issuance of visas. 

There was just enough time to dash to the airport and catch the 
next flight to London, another red-eye. They passed out on the 



GAME OVER 



plane and awoke as it touched down at Heathrow, where it was 
now late afternoon. There was an evening to kill in London before 
the next flight to Moscow. 

The two retired after dinner. Lincoln said he would ring 
Arakawa's room at 7:00 a.m. so they could catch the nine-thirty 
flight. But he slept through his wake-up call, stirring at about eight. 
When he realized the time, he frantically called Arakawa. The two 
threw their clothes in their bags and raced to the airport, where 
they sprinted through the terminal and tried to blast through the 
security checkpoint. 

A bevy of security guards approached them. It was the first time 
they had paused to look at each other. They were unshaven, their 
hair was tousled, and Lincoln was wearing his pajama top under 
his suit jacket. 

Fast talking got them past the security checkpoint and they got 
to the plane just as the door was about to be closed. The two 
looked as if they were on the lam from a madhouse. 

They slept on the flight to Moscow that Sunday, March 19, 1989. 
Rogers and Huhs met them at the airport. Rogers, who had rented 
a black Mercedes 190, maneuvered the car through Moscow while 
Arakawa and Lincoln stared at the passing scenery, the heavy- 
coated pedestrians, and the surprisingly European architecture. It 
seemed like a film of New York in the 1940s. 

Rogers told Arakawa and Lincoln that he had managed to find a 
Japanese exporter who had a fax machine they could use. He also 
had a portable computer and printer set up in his hotel room. He 
said he and Huhs would meet them the next morning at Elorg — he 
supplied the address on a piece of paper — and then dropped off 
his exhausted passengers. 

At the front desk, Arakawa was informed that rooms were un- 
available but that he and Lincoln needn't worry; the hotel would 
put them in an apartment in an adjacent building. It had a discon- 
nected stove, a refrigerator missing a door, a ragged sofa, and, 
down a musty hallway, a small bedroom. They looked at the single 
bed and, without uttering a word, pulled out their wallets, slid out 
dollar bills, and played liar's poker. Arakawa lost and got the 
couch. 

Despite their fatigue, the two men left the apartment in order to 



THE "TETRIS" SONG 325 

stock up on supplies and soon found what they were looking for: a 
liquor store with the crucial provisions. Their arms loaded with 
Heineken and cognac, they returned to their room, where they 
drank until Lincoln retired to the bedroom and Arakawa passed 
out on the couch. 

In the morning, after rendezvousing with Huhs and Rogers, Lin- 
coln and Arakawa were escorted into a conference room with high 
ceilings and shaded windows at Elorg's office. There they were 
introduced to the game's designer, Alexey Pajitnov, the Elorg 
chief, Nikolai Belikov, and some of his associates. Pajitnov at- 
tempted to size up Arakawa and Lincoln, but they were "like 
people from another planet." Lincoln was stoic, immune to 
Pajitnov's joking and teasing; Arakawa was introverted and inac- 
cessible. But because of their alliance with Henk Rogers, Pajitnov 
was inclined to trust them and was their ally throughout the first 
meeting. 

Although he had tried to talk fishing with Belikov and one of his 
assistants, once the major issues were on the table, Howard Lin- 
coln was neither chatty nor amiable. Money was not the most 
important issue for the Nintendo team. They were more concerned 
with Stein's and Mirrorsoft's claims to the home video-game rights. 
Lincoln needed assurance that the Russians had never meant to 
sell those rights to Andromeda or anyone else. Satisfied with the 
answers, he said emphatically several times that he had to be abso- 
lutely certain that the Soviets would commit to the deal and stick 
with it to the end, and that the Russians had to be prepared for a 
variety of counterattacks from Andromeda, Mirrorsoft, and Atari 
Games. Arakawa sat by patiently, his hands folded on the table. 

The Soviets had come prepared with copies of all the letters, 
telexes, and contract proposals, in addition to the signed contracts 
with Stein and Andromeda. Lincoln examined them. One docu- 
ment was worth all the others: the amendment Robert Stein had 
signed that defined a computer. The NES was without a "monitor, 
disk drive(s), keyboard and operation system." It was not a com- 
puter. 

The Russians eagerly broached new business with Nintendo. 
Glasnost had begun, and partnerships with the West in the form of 
joint-venture companies were being encouraged by the govern- 



326 GAME OVER 



ment. Belikov said that they wished to form a partnership with 
Nintendo, a joint venture that would provide NOA with terrific 
new video games like "Tetris. ,, 

Lincoln suggested that they complete one negotiation at a time. 

Next the Soviets asked why they couldn't manufacture the 
"Tetris" cartridges themselves. 

"That's not what we had in mind," said Lincoln. "Nintendo 
manufactures all the cartridges." 

The Russians then said they wanted to make Nintendo systems 
themselves and sell them in the U.S.S.R. 

"We make them in Japan, thank you." 

Tb impress the men from Nintendo with Russia's engineering 
prowess, an Elorg representative brought out a small box. "Our 
people made this," he said. 

Arakawa opened it. Inside was a Game & Watch that played 
"Donkey Kong." There was no sign of Nintendo's name or trade- 
mark on the watch. Arakawa politely complimented the Soviets on 
the product. 

After the initial meeting, Arakawa and Lincoln took Huhs, Rog- 
ers, and Alexey Pajitnov out for dinner at the only Japanese restau- 
rant in Moscow. It had no liquor license, so a waitress was 
dispatched to a store and returned with several large bottles of 
beer. 

When a plate of sushi arrived, Pajitnov's first, he tried a small 
bite. Arakawa explained that sushi should be eaten a whole piece 
at a time. Bravely Pajitnov tried some toro, the fatty tuna belly set 
on a tiny brick of rice, carefully balancing it on his chopsticks and 
maneuvering it into his mouth. The taste was surprisingly pleasant, 
he found. He got more proficient with the utensils as he tried 
yellowtail, eel, crab, and tamago, a miniature omelette set on rice. 
Then he attacked a gluey green ball on his plate and popped it into 
his mouth as his companions, in a chorus, shrieked, "No!" They 
were too late; Pajitnov had downed a mound of wasabi, the wildly 
hot horseradish meant to be used in small amounts to spice the soy 
sauce for dipping. He felt a stinging explosion in his nostrils and 
behind his eyeballs, which vibrated as if they were ready to launch 
from his head. He tried to drown out the burning with beer, but in 
vain. 



THE "TETRIS" SONG 327 

Arakawa couldn't hold back his laughter. Rogers joined him, 
and soon the others did too while Pajitnov wiped the tears that 
streamed from his eyes. He had better luck managing the courses 
that followed; shabu shabu, ginger fish, and vinegared seaweed, all 
washed down with beer. 

After dinner, the party shifted to Pajitnov's apartment to see a 
new game he had created which he planned to sell through a joint- 
venture company in Moscow. Lincoln was concerned that the 
game, "Welltris," might be derivative of "Tetris," and that perhaps 
he should sew up the rights to it as well. Arakawa was more inter- 
ested in seeing a Russian apartment; he had come equipped with a 
Game Boy for Alexey's children. 

When they all entered the Gersten Street building and got into 
the elevator, Arakawa and Lincoln exchanged glances as it began 
its creaking, unstable ascent. Below them, the elevator shaft could 
be seen between the floorboards, and Lincoln pressed himself 
against a wall in an effort to keep his weight off the elevator floor. 
When they reached their destination, the elevator doors opened 
three or so precarious feet below the landing, and everyone had to 
climb up to reach the floor. 

Inside the cheery apartment, Pajitnov's wife, Nina, served icy 
vodka and Russian brandy. Both Arakawa and Lincoln had ques- 
tions to ask about life in Moscow, and the Pajitnovs were happy to 
answer them while their eldest child, Peter, played his father's 
game on Game Boy. Peter was told he was the only child in the 
Soviet Union with a Nintendo system. 

The following day, the Nintendo representatives returned to 
Elorg ready to iron out the deal. Howard Lincoln outlined his plan 
to prove that the video-game rights to "Tetris" had never been 
sold, then confirmed Nintendo's offer. The negotiations continued 
for three days. Lincoln was determined not to leave Moscow with- 
out a signed contract, and with Henk Rogers on the word proces- 
sor, they knocked one out, paragraph by paragraph, in Rogers's 
hotel room. In morning meetings with the Soviets, the details were 
spelled out, and in the afternoon the changes were typed out and 
printed. 

In one meeting, Lincoln said he wanted it to be clear what the 
game's author's rights were. The Elorg people answered that since 



GAME OVER 



Pajitnov worked for the Computer Center and had created the 
game on company time, the copyright was owned by the Academy 
of Science, and that as the trade organization, Elorg was autho- 
rized by the Academy to license "Tetris." Pajitnov nodded his con- 
firmation. He was resigned to a small degree of glory, perhaps 
some opportunities for the future, but no money. 

Lincoln insisted on a clause in the contract that committed the 
Soviets to cooperate in any litigation that might ensue; they would 
have to come to the United States to testify if it became necessary. 
Then, at the last minute, the Soviets began to squabble over the 
royalty Nintendo had offered, but Lincoln said the deal was no 
longer negotiable. Nintendo was going to be responsible for the 
legal expenses, which would probably be sizable because many 
people would be upset about the agreement they were about to 
sign. These included, he noted, Stein, Atari Games, the Mirrorsoft 
people, and Mirrorsoft's owner, Robert Maxwell. The mention of 
Maxwell dampened the discord, particularly since Belikov was all 
too aware of the latest telex from Mirrorsoft that had arrived that 
morning: Jim Mackonochie, responding to the last Soviet commu- 
nique, had written to insist that Mirrorsoft didn't have to offer 
anything for the video-game "Tetris" rights since it already owned 
them. 

By way of reply, Elorg sent a telex informing Mackonochie that 
neither Andromeda, Mirrorsoft, nor Tengen had been authorized 
to distribute "Tetris" on home video-game systems, and that the 
rights were no longer available since they had been granted to 
Nintendo of America. The telex was sent on March 22, the same 
day the Nintendo contract was finalized. Arakawa signed for Nin- 
tendo, Pajitnov signed as the author, and Belikov signed for Elorg. 

The signing ceremony was attended by representatives of Nin- 
tendo and Elorg, as well as two senior officials of the Soviet gov- 
ernment, Edward A. Maksakov, deputy chairman of the State 
Committee for Computer Systems and Informatics, and Dr. Stanis- 
lov I. Gusev, head of the Department of Scientific-Technical Infor- 
mation at the Computer Center of the Academy of Sciences. The 
advance guarantee was kept confidential, but rumors had it at $3 to 
$5 million. Lincoln says it was less, but will not divulge the amount. 



THE "TETRIS" SONG 329 

Dennis Wood, Atari Game's counsel, says the amount "would en- 
tice anybody to double-license." 

An attempt to derail the Nintendo deal arrived on March 23, 
addressed to Belikov. Kevin Maxwell wrote: "I give you formal 
notice that you are now in grave breach twice over of our agree- 
ments with you." He added that the matter would be raised during 
the forthcoming visit to London of President Gorbachev and 
stated flatly, "We already hold the worldwide rights to Tetris' on 
the Nintendo family computer. Indeed, we have been marketing it 
accordingly, both directly and through Tengen in the United States 
and Bullet-Proof Software in Japan since January 1989. . . ." 

Maxwell said he was coming to Moscow and was willing, "in the 
spirit of reconciliation," to meet Belikov to "hear how you intend 
to remedy your double breach of our agreement." He concluded 
by threatening that if the Russians didn't make good, he would 
carry the matter to the highest legal and political levels. 

It was too late. That evening, Arakawa, Lincoln, Rogers, and 
Huhs celebrated at the Japanese restaurant with Alexey Pajitnov. 
Sitting at the Teppan Yaki bar, they asked the Japanese waitress if 
she would go to the liquor store for beer. 

"Finnish beer?" they heard her say. 

Fine, they responded, and she scurried off. 

Arakawa tried to contain his elation, but his smile was enor- 
mous. "We've got it," he said exultantly to Lincoln. Spirits were so 
high that the table almost levitated. 

The waitress hadn't returned with the beer and it was time for a 
toast. Lincoln saw the waitress and called her over. "Where is the 
beer?" he asked her. 

"Finish beer," she repeated. "Finish beer." 

"Fine," Lincoln said, "but . . ." 

With her delicate hands, the woman made an X. "Finish beer!" 
she said firmly. 

Roaring with laughter, they toasted instead with soft drinks. 
(Later Henk Rogers sent Howard Lincoln a case of Finnish beer as 
a present.) 

They all exchanged warm hugs after dinner and said good night. 



330 GAME OVER 

Rogers was particularly happy. Not only did he have the hand-held 
rights to "Tetris," sublicensed to Nintendo for Game Boy, but as a 
reward he had also been given a sublicense to distribute "Tetris" 
for home video-game systems in Japan, the rights he thought he 
had bought from Atari. This time, though, he got the game at 
Nintendo's cost. This meant his profit would be $5 to $8 more per 
cartridge than what other licensees made on games manufactured 
by Nintendo. Combined, he was about to make perhaps $30 to $40 
million on "Tetris." 

That difference was pocket change for Arakawa and Lincoln, 
who, back at their squalid apartment, finished off the warm 
Heineken they had bought earlier. They were too excited to sleep 
and sat up all night talking. 

Heading to the airport the next morning to fly home, Arakawa 
said, "I'm never coming back to this place again." 

"Not so fast!" Lincoln interrupted. "We promised we'd be back 
with a bunch of Game Boys for their hospitals and orphanages." 

Arakawa shook his head and grinned. "We did," he said, "and 
they'll be very grateful for them whenyow deliver them." 

"We knew we had those bastards by the balls," Howard Lincoln 
says. "We knew we were going to make a fortune on this product 
and they, in turn, were going to get kicked in the head." He wor- 
ried only about what Robert Maxwell would do when he heard that 
Nintendo had snatched "Tetris." 

In late March, Belikov sent telexes to Mirrorsoft and to Stein at 
his London office. Hand-held "Tetris" rights were no longer avail- 
able. The telex stated, "It is a pity that we were forced to conclude 
the contract concerning Tetris' for hand-held with another firm." 

Stein sublicensed his hard-won coin-op rights to Mirrorsoft, but 
Maxwell's company was unable to secure the most valuable rights, 
in particular the home video-game rights that it had already subli- 
censed to Atari Games. Mirrorsoft was in trouble because Atari 
Games had already invested millions in the Tengen version of 
"Tetris." 

Back in Redmond, Lincoln relished the moment he sent a fax on 
March 31 to Hide Nakajima and Atari Games in California. It 
informed Nakajima and company that they must "cease and desist 



THE "TETRIS" SONG 331 

from any further manufacture, advertisement, promotion, offer for 
sale or sale of Tetris' for the NES or any other home system" 
because the rights belonged to Nintendo. 

An attorney from Dennis Wood's office ripped the fax from the 
machine and read it quickly, stared at the paper, shocked, and 
rushed to Dennis Wood's office. Wood read and reread the fax 
before walking, stony-faced, into Hide Nakajima's office. 

Tengen quickly called Mirrorsoft to find out what was going on. 
The initial response from Mirrorsoft was not to worry; the rights 
were theirs. Whatever Nintendo and the Russians were up to 
would not work, Dennis Wood was told. 

It took until April 7 for Tengen to respond to Nintendo. "We are 
in receipt of your letter . . . and quite frankly are quite confused. 
As Nintendo has known since last year, Tengen received all NES 
rights to the game Tetris' in early 1988. These rights are, in 
Tengen's view, clear and unequivocal. . . ." 

Howard Lincoln offered to discuss things further, but by then, 
on April 13, Atari Games had filed an application for a copyright 
on the "audiovisual work, the underlying computer code and the 
soundtrack" for "Tetris" for the Nintendo system. Atari did not 
inform the Copyright Office that its version of "Tetris" was simply 
a spruced-up version of Alexey Pajitnov's game, or that Nintendo 
had informed Atari that it held the exclusive rights to the game. 

In a conference in London, Jim Mackonochie told Kevin Max- 
well about Nintendo's frontal attack. Maxwell decided it was time 
to inform his father, and the senior Maxwell "went berserk," as an 
associate put it. "He went ape shit." 

When told that the Soviets had broken the protocol agreement, 
Robert Maxwell had Kevin explain the details of the "Tetris" nego- 
tiations. A protocol agreement is not a legal document, but it is, 
the elder Maxwell insisted, the equivalent of a gentlemen's agree- 
ment. To break it was, according to Robert Maxwell, tantamount to 
a slap in the face. The ultimatums Mirrorsoft had been given by 
the Russians were clearly for show; the legal right of first refusal 
had been mocked. 

At that time, Robert Maxwell was steadfastly building a global 
media empire that would span more territory than Her Majesty's 
empire ever did. "Information is growing at 20 percent a year," 



332 GAME OVER ' 

Maxwell said in the early 1960s. "Communications is where oil was 
ten years ago. There will be seven to ten global communications 
corporations. My ambition is to be one of them." He had pursued 
this ambition tenaciously, gobbling up or founding communica- 
tions-related companies from Britain to China, the Soviet Union, 
and Brazil. 

Maxwell not only had a formidable world presence as a business- 
man, but used his position to gain remarkable influence in world 
politics. He was a trusted adviser of leaders in Israel and Canada 
and a powerful force in opposition to the Conservative govern- 
ments of Margaret Thatcher and John Major in Britain. He spoke 
nine languages fluently, and his phone rang incessantly with calls 
from world leaders. When a secretary told him that the prime 
minister was on the phone, he asked, "Which one?" 

Maxwell was trusted by Soviet president Mikhail Gorbachev, but 
he had been a familiar face in the Kremlin even earlier. He had 
known and published books by four former Soviet leaders — Brezh- 
nev, Andropov, Gromyko, and Khrushchev — so there was every 
reason to believe his boasts about his influence in the U.S.S.R. 

Although Maxwell's son Kevin was in charge of Mirrorsoft over 
Mackonochie, the elder Maxwell had a twenty-four-hour-a-day 
watch on all aspects of his parent companies, Maxwell Communi- 
cations Corporation and the Mirror Group. It was a way to be 
certain that no one, not even his sons, knew exactly what he was up 
to. He was a general who kept his commanding officers in the dark 
on most important operations, informing them on a need-to-know 
basis and playing them off against each other. He staged surprise 
troop inspections to keep his top brass on their toes. 

Kevin Maxwell tried tQ avoid going to his father for anything, 
but big guns were required in the "Tetris" deal. When he was told 
that the Soviets had double-dealt them, Robert Maxwell punished 
his desk with his fist. "They won't get away with it," he bellowed. 
"Rest assured of that." He promptly wrote letters to his friends in 
the Kremlin, including the minister of foreign economic relations, 
who catered to him when he visited Moscow. "We attach high 
importance to our excellent commercial relations with the Soviet 
government and many leading agencies in the fields of informa- 



THE "TETRIS" SONG 



tion, communications, publishing and, indeed, pulp and paper pro- 
duction," Maxwell wrote. "We face the prospect of all this being 
jeopardized by the unilateral action of one particular agency." 

That agency, Elorg, was concerned when there were rumblings 
from above. However, this was perestroika and, as Jim Macko- 
nochie put it, the Elorg bureaucrats were "feeling their oats." Still, 
when the foreign economic relations minister began to pry into the 
agency's affairs, Belikov realized trouble was brewing. 

Next Maxwell contacted his own government and asked Lord 
Young, secretary of state for trade and industry in Britain, to inter- 
vene; he wanted "Tetris" to be discussed between the heads of 
state during a forthcoming visit by Gorbachev. 

Word filtered back to the Moscow Academy of Science that 
Maxwell was throwing his substantial weight around, and people 
there and at Elorg worried that their authority might be under- 
mined. At the same time, they were also delighted. In a strategy 
meeting with Belikov, the Academy chiefs debated how to respond 
to the Central Committee of the Communist Party, which was 
certain to react to an inquiry from the secretary general. 

Belikov felt justified in having made the deal with Nintendo, and 
he planned to stand up for it. For all his dinner parties with the 
Gorbachevs, Maxwell had offered the Academy, via their dealings 
with Elorg, only a fraction of what Nintendo would bring to the 
country's coffers. In addition, Mirrorsoft was continually behind in 
its payments. Most of all, Belikov was convinced that Mirrorsoft 
had willfully stolen the Russians' game, and that Gorbachev him- 
self would understand that Elorg had made the correct decision. 
Elorg, Belikov decided, would defend its decision whatever the 
pressures. 

The infighting was epic as Elorg and the factions of the Party 
loyal to Maxwell exchanged urgent messages. There were threats 
of prosecution, and that the KGB would be used against individu- 
als who refused to cooperate. The pressure on the Russians 
peaked when Robert Maxwell flew to Moscow to meet Gorbachev 
directly. He was prepared to discuss his planned printing ventures 
and the newspapers he wanted to launch, but first on his list was 
"Tetris." 



334 GAME OVER 



Maxwell arrived in Moscow on his private jet and was whisked to 
the Octoberskaya, the government's elite hotel, by police motor- 
cade. The meeting that afternoon was friendly, and he brought 
"Tetris" up only after initial small talk and joking. Maxwell later 
claimed that after the discussion, Gorbachev promised him the 
matter would be resolved to his satisfaction; "He said I should no 
longer worry about the Japanese company." 

Lincoln returned to Moscow in late April and was joined by his 
New York lawyers, Huhs and John Kirby, as well as one of Kirby's 
associates, Bob Gunther. For the New York attorneys, the trip 
began with a comedy of errors. Gunther dropped and broke a 
printer he had lugged from New York, and then left his wallet, 
which contained $1,000, in a Moscow taxi. Kirby had all his shirts 
stolen at Kennedy Airport, and as a result he had to shop for 
clothing in Moscow before he could begin the series of meetings. 
He found a stack of pitiful polyester shirts at a concession stand on 
a street near his hotel. 

The Nintendo team showed up for a meeting in the main Elorg 
conference room, where Belikov, Pajitnov, and half a dozen other 
Russians were waiting, visibly shaken. They were not unfriendly, 
just burdened; increasing pressure was descending on them from 
the top. The meeting progressed with no mention that there was 
anything wrong, but Howard Lincoln sensed trouble. "What is it?" 
he asked Belikov. "What has happened?" 

Belikov shook his head vigorously. "Nothing has changed," he 
said, but during a break in the meeting he pulled Lincoln aside. 
"You do not understand," Belikov said under his breath. "We have 
done the right thing with you, but the Maxwells have threatened 
us. We have said, 'No, we will not be threatened by you. A contract 
is a contract and we will honor it and Nintendo is our licensee.' " 
Whispering, he continued, "But I must tell you, Mr. Lincoln, we 
are getting calls from the Kremlin, calls from people who never 
before knew we existed. Many of them have shown up to examine 
our records and to question us on this deal. We have told them we 
have done the right thing. We have stood up to them, but we do 
not know what will happen." 



THE "TETRIS" SONG 



The meeting resumed with a hint of counterespionage in the air. 
There were worries about spies in Elorg and KGB surveillance, not 
only of the meetings but everywhere twenty-four hours a day- 
tapped hotel telephones, monitored strolls, and bugged restaurant 
tables. 

Preparing for the worst, the Nintendo attorneys interviewed 
Pajitnov the next day, as well as people at the Academy of Science, 
the Computer Center, and Elorg, and examined every scrap of 
paper that dealt with "Tetris." Belikov also wrote a lengthy letter 
to John Kirby recounting his version of the "Tetris" history, and 
this was later included in the court record as Belikov's declaration. 

In the meantime, on his jet winging its way from London to 
Jerusalem for a meeting with Israel's Prime Minister Yitzhak 
Shamir and Defense Minister Moshe Arens, Robert Maxwell was 
asked by a reporter why his intervention with Gorbachev had ap- 
parently been futile. He snapped, "How do you know about that 
deal? How do you know about the meeting?" Then he shrugged it 
off as if it had been inconsequential. "So much money was in- 
volved, his people convinced Gorbachev to work with the Japanese 
company," he said. "I did what I could." He blamed his losing the 
fight to Gorbachev's tenuous hold on power. "He said other peo- 
ple in the government felt strongly that it should go the other way, 
so we were stopped." Maxwell insisted that the principle was what 
had goaded him. "I am an honorable man and I expect honorable 
treatment, but you take your lumps along the way." It was not the 
last lump Maxwell would take. 

In the middle of the night, Howard Lincoln was awakened in his 
Moscow hotel room by the telephone. The operator said she had a 
call from America. 

The time in Redmond, eleven hours behind Moscow, was two in 
the afternoon, and the caller was one of his associates at NOA; 
"Tengen has sued us," she said. 

At Elorg the next morning, Lincoln announced this news with a 
bit of glee. The Soviets were in for a taste of the American legal 
system, as sluggish and inefficient as the leviathan Soviet bureau- 
cracy. 



33B GAME OVER 



To begin to prepare, Lincoln, together with Huhs, Kirby, and 
Gunther, continued to interrogate each of the principals involved 
in the "Tetris" negotiations, wanting to be certain their case was 
airtight. Before it was all over, Alexey Pajitnov would tell his story 
a few dozen times. When he was satisfied, Lincoln flew to Japan to 
confer with Yamauchi and Hiroshi Imanishi before heading home. 
Yamauchi was delighted with everything that had happened, un- 
concerned about the lawsuit. It was the kind of wheeling and deal- 
ing he admired. "You and Arakawa-san have done well," he said. 

Back home, Lincoln filed a countersuit against Tengen, and law- 
yers on both sides girded for battle. Evidence was gathered and 
depositions were taken in the United States, England, and then, in 
June, in Moscow. 

John Kirby's staff continued to investigate on Nintendo's behalf 
in the United States. Kirby found that Tengen had filed applica- 
tions for trademark registration of "Tetris" in the United States, 
Japan, Australia, Canada, the United Kingdom, West Germany, 
Italy, and Spain. Pajitnov sat for still another interview, this one 
four hours long. Huhs had Pajitnov reconstruct, in ponderous de- 
tail, the story of "Tetris," from its inception to the first letter from 
Stein and up to the present. 

Tengen shipped its first batch of "Tetris" cartridges in May 1989, 
despite the notice it had received from Nintendo and the pending 
litigation. Setting out to sell what the company felt would be 
Tengen's hottest game ever, Randy Broweleit and Dan Van 
Elderen placed a full-page ad in USA Today announcing "Tetris": 
"It's like Siberia, only harder," the ad read. "It's here, America 
. . . The nerve-wrackingest mind game since Russian Roulette. 
... So round up a few of your high-IQ pals, okay? You know, 
macho men with the first-strike capability to beat the Russian pro- 
grammers who invented it. . . . But there's one little catch. If you 
can't make the pieces fit together an avalanche of blocks thunders 
down and buries you weaklings!" This was hardly in tune with 
Pajitnov's vision of "Tetris" as a peacemaker. 

Tengen held a grand reception for retailers, trade reps, and the 
press at the Russian Tea Room in New York on May 17. The place 
was packed, and there was free-flowing vodka and Russian hors 
d'oeuvres amid the Tea Room's year-round Christmas motif. Rus- 



THE "TETRIS" SONG 3 3 "7 



sian music played in the background, and Tengen "Tetris" games 
were set up for play. 

Beginning in June, the case was heard in San Francisco in the 
courtroom of Judge Fern Smith, who also was trying the Nin- 
tendo-Atari Games antitrust and breach-of-contract cases. Ulti- 
mately the "Tetris" suit hinged on personalities, semantics, and 
two lines buried in the pounds of documents. Stein's contract with 
the Russians stipulated that he was being given the rights for com- 
puters, and no one argued this point. But Atari Games contended 
that the Nintendo system was a computer, a microprocessor-based 
machine that ran software. To prove that there was no valid distinc- 
tion between the NES and other computers, Atari Games' attor- 
neys noted that Nintendo itself viewed its machine as a computer, 
with planned hookups that would connect to the expansion portal. 
The anticipated peripherals— such as a modem, keyboard, and, 
ultimately, a CD— were proof that the NES was a computer. In 
Japan, the NES was even called the Famicom, or Family Com- 
puter. As one Tengen spokesman observed, "In court Nintendo 
went to great lengths to say that the NES was a toy and its car- 
tridges were the equivalent of Barbie's arms and legs, but at the 
same time they were signing up AT&T to use its machine for stock 
reports. There was a Nintendo computer network in Japan and 
one planned in the U.S. Sounds like a computer to me," he said. 

The Atari contingent echoed the charges made by Robert Max- 
well that the Soviets saw they could make a lot more money from 
Nintendo, so they found a loophole and pleaded ignorance. This 
was in spite of Alexey Pajitnov's insistence that the deal never was 
meant to include more than PCs; Pajitnov, the Atari contingent 
charged, was Nintendo's dupe, instructed on exactly what to tell 
the court. 

Dan Van Elderen believes the Russians were less innocent than 
they pretended to be. "Whether the language was ambiguous or 
not, they knew they had sold all those rights until they figured out, 
counseled by Henk Rogers and Nintendo, that there was a loop- 
hole. They realized they could have gotten a lot more money, so 
they double-dealt us all." 

Tengen's Randy Broweleit revealed in his deposition how much 



338 GAME OVER 



was on the line for Atari Games. In 1988 his company had devoted 
more than three personnel years to "Tetris," and more than 
$250,000. By January 1989, Tengen had committed to manufacture 
300,000 "Tetris" cartridges and spent $3 million on them, plus 
millions on packaging, engineering, and marketing. One hundred 
thousand units had been shipped, and there were initial orders for 
150,000 before the game was released in May 1989. 

Hide Nakajima insisted that Nintendo had colluded to steal his 
game. "Something went on between the Russian author and Nin- 
tendo," he charged. "Nintendo knew we had the license, and it 
urged us to go forward with the game. Nintendo only cared once 
we filed the antitrust suit against them. They went after us. How- 
ard Lincoln and Arakawa wanted to stop us. It was revenge." 
Howard Lincoln has affirmed this last point. "It was revenge," he 
says. "And you know what they say about how sweet revenge can 
be." 

Nintendo's argument was straightforward: in spite of their inno- 
cence about international software licensing, the Soviets knew ex- 
actly what they were doing when they assigned the rights to Stein. 
Computers were computers. Just as the Soviets' contract with Stein 
excluded the rights to hand-held and arcade games, the Russians 
had had no intention of selling home video-game rights. T\vo lines 
in the contract proved it: the line stipulating computers in the main 
body of the final contract, and also a line in the amendment- 
alteration no. 1— which specified that a computer had a keyboard, 
monitor, and floppy-disk drives. The NES machine had none of 
those; ergo, it was excluded. Nintendo held fast to the position that 
it had bought the "Tetris" rights fair and square, giving the Rus- 
sians a fair deal, while Tengen's rights were part of a faulty chain. 
The weak link was the original one with the West, Robert Stein's 
contract, which covered PCs clearly and explicitly. Assumptions 
made beyond that, whether by Stein, Mirrorsoft, or Tengen, were 
nothing short of thievery. 

Nintendo and Tengen were trying to stop each other from selling 
"Tetris" with cross motions that they filed for preliminary injunc- 
tions to prohibit the other from selling the game. A hearing about 
this was held on June 15, 1989. 
After reviewing the depositions and mass of documents, Judge 



THE "TETRIS" SONG 339 



Smith decided that there was no evidence that Tengen (and the 
licensing chain that awarded it the rights) had ever been granted 
the video-game rights. She said she believed that Nintendo was 
likely to prevail in court, and therefore she granted Nintendo's 
request for a preliminary injunction. Tengen was enjoined and re- 
strained from manufacturing and selling the home video-game 
"Tetris" as of June 21. 

At this point, Hide Nakajima, Dennis Wood, and Dan Van 
Elderen (Randy Broweleit had left Atari Games to start an inde- 
pendent software licensing company) could only hope that the 
court ultimately would reverse this opinion, although it seemed 
unlikely (and no trial was scheduled as of late 1992). Tengen's 
production of "Tetris" cartridges ground to a halt. Although it 
claimed that its version of "Tetris" was superior to the one Nin- 
tendo released, Tengen had to lock its games away in a warehouse 
pending a final verdict, and its "Tetris" soon became a collector's 
item, selling for as much as $150. 

Nintendo released its NES version of "Tetris"— slickly rede- 
signed, with a score of Russian music— and it sold rapidly, remain- 
ing on the Nintendo top-ten most-popular game list (behind 
"Super Mario Bros. 3") for over a year. Pajitnov laughed when he 
heard that when millions of American children watched the eve- 
ning news and saw a shot of St. Basil's Cathedral in Red Square, 
they shouted excitedly, "Look, the Tetris' towers!" Similarly, 
Tchaikovsky lost credit for his "Dance of the Sugarplum Fairy"; 
kids knew it only as "the Tetris' song." On a modest level, 
Pajitnov's dream that his game would be a bridge between cultures 
was realized. "Tetris" contest winners were awarded a ten-day tour 
of Kiev, Leningrad, and Moscow, "home of Alexey Pajitnov." Nin- 
tendo Power ran features about his homeland, and kids who played 
the game saw that something wonderful had come from the former 
"evil empire." 

Grown-ups flocked to "Tetris" too. Arakawa had predicted cor- 
rectly: feedback from its customers told NOA that a third to a half 
of the "Tetris" players were adults, and Nintendo's presence in the 
adult market increased to such a degree that almost half (46 per- 
cent) of the Game Boy players in the West were adults. 
Arakawa was also right about another thing: "Tetris" sold mil- 



340 GAME OVER 



lions of Game Boys. A total of 32 million of them sold worldwide 
through 1992, more than Hiroshi Yamauchi had predicted. A U.S. 
senator, a "Tetris" addict, joked that the game was a Soviet plot to 
distract and hypnotize Americans. 

The game also did things for Nintendo that Arakawa hadn't 
anticipated. When the company was attacked by educators and 
psychologists for the mindless violence and lack of redeeming 
value of its games, Nintendo now had fodder for counterargu- 
ments. Some theories claimed that "Tetris" play increased intelli- 
gence scores (at least in the area of spatial relationships). Also, a 
study in Moscow showed that "Tetris" helped improve driving 
skills because it trained players to make decisions extremely 
quickly, shortening drivers' reaction time. 

Kids were getting Tetrisized and played compulsively. After they 
stopped playing, however, they complained that "Tetris" shapes 
remained impaled somewhere in their consciousness. Grown-ups 
became Tetrisized as much as kids. A reader wrote in to a national 
women's magazine; "[Tetris'] led me to beg my coworkers not to 
leave me behind in the office when they left, for fear I'd stay 
[there] all night playing. I removed the game from my computer at 
home and threw it away, but I passed a Game Boy in a store and 
couldn't stop. I went in and bought it." A Russian cosmonaut even 
took one into space. (The Russian had been given the game by 
Howard Lincoln, who had returned to Moscow with his sixteen- 
year-old son, Brad, on what was, for the most part, a social visit. 
He brought with him the one hundred Game Boys that Arakawa 
had promised. Arakawa kept the other part of his promise by 
staying home.) 

The journey of Alexey Pajitnov's program from Moscow to most 
places on the globe— and to space and back— left a number of 
casualties in its wake. Robert Stein says, " Tetris' made enemies 
out of friends and corrupted people left, right, and center." An- 
dromeda, Mirrorsoft, and Atari Games, he says, felt that every 
penny Nintendo earned on "Tetris" should be theirs. "So why don't 
we all get together instead of fighting like lunatics?" he asks. But 
fight like lunatics they did, so infighting tied up most of the profits 
earned by the versions of the game not controlled by Nintendo and 



THE "TETRIS" SONG 341 



BPS. Mirrorsoft saw modest profits on its floppy-disk "Tetris," but 
almost nothing from the licenses it sold to Atari Games, which 
refused to pay Mirrorsoft anything pending the outcome of the 
litigation with Nintendo. 

Atari Games released a coin-op game and sold 15,000 to 20,000 
units, according to Dan Van Elderen. It also earned a royalty on 
the arcade games Sega sold in Japan, but Atari's sublicense to 
Henk Rogers was useless and it would probably have to return 
Rogers's advance for the home video-game rights in the original 
deal. 

Robert Stein admitted that over the years he had made about 
$200,000 on "Tetris" but said he could have made millions. In- 
stead, he watched as the Soviets severed all of his ties to the game, 
citing nonpayment of royalties. Stein lost his rights to the computer 
versions of "Tetris" in 1990. Spectrum Holobyte had been paying 
royalties to Mirrorsoft, which refused to pay Stein. The Russians' 
75 percent of Stein's nothing was nothing, so Elorg finally revoked 
his license. In order to retain the rights to "Tetris" on PCs (and to 
retain the rights to sell "Tetris 2"), Spectrum Holobyte had to 
negotiate a new deal directly with the Soviets. Gilman Louie found 
that the Soviets had learned a great deal from the "Tetris" experi- 
ence, and he had to pay a far higher royalty than in his deal with 
Mirrorsoft for the license he already had. 

At this point Stein still held the coin-operated "Tetris" rights, 
but he received nothing for them as long as Atari Games didn't pay 
Mirrorsoft. Since he didn't pay, Elorg announced in February 1992 
that it was terminating the coin-op deal as well. Stein vowed to 
fight, but it would be an uphill battle. The man who had discovered 
"Tetris" for the West lost all his rights to the game. 

The lawsuit remained unsettled well into 1992, although rumor 
had it that Atari Games would settle. If this happened (or if Nin- 
tendo prevailed in court), Atari Games would probably go after 
Andromeda, Mirrorsoft, and, ultimately, Maxwell. Maxwell and 
Stein had warranted that they owned the rights they had sold, and 
probably would be held responsible. Stein wouldn't be worth going 
after, but Mirrorsoft, with Maxwell's deep pockets, would have 
been— that is, until it turned out that those pockets were actually 
black holes. The upshot of the scandalous collapse of the Maxwell 



342 GAME OVER 



organization was the dissolution of Mirrorsoft (its meager assets 
were bought by Acclaim Entertainment) following Robert Max- 
well's suspicious death. 

Other "Tetris" players fared better, although Kevin Maxwell was 
left to suffer for his father's corrupt business practices. Not only 
was he left with no assets or income, but there was a good chance 
he would be indicted, despite the fact that he may have been kept 
in the dark about Maxwell senior's illegal maneuverings. 

Jim Mackonochie had been forced out of Mirrorsoft well before 
it collapsed, back when Kevin Maxwell restructured the company 
in 1991. Mackonochie ended up working as a consultant in the 
industry before being hired to work on CDTV software by Com- 
modore International in London. 

As their country transformed, the Russians at Elorg and the 
Academy of Science scattered, although Nikolai Belikov remained 
at Elorg long after the Communist Party fell from power. A freer 
country meant increased opportunities for trade, and Belikov, no 
longer saddled by the pressures of the Party's interests, saw abun- 
dant possibilities for exporting Russian technological achieve- 
ments. His first Yeltsin-era task was negotiating the tough deal 
with Gilman Louie for "Tetris 2"— designed along with Pajitnov 
and others. 

The Academy's Sasha Alexinko wound up in Vienna, where he 
formed a trading company. Victor Brjabrin also left Russia and 
found challenging work in Western Europe with a nuclear-regula- 
tory commission run by the United Nations. Young Vadim Ger- 
asimov left Russia too. At only twenty, he moved to Tokyo, where 
he studied Japanese and worked with a software developer, who 
then advertised that the codeveloper of "Tetris" was on his staff. 

In America, Phil Adam left Spectrum Holobyte in the hands of 
his partner, Louie, who took Spectrum on to new ventures, from 
new combat simulators to other Nintendo games. In 1992, Louie 
debuted a futuristic video-game system for arcades and shopping 
malls. Kids climbed into a slick pod or stood inside a device that 
looked like a gyroscope, strapped on binocular-like goggles, and 
entered computer-generated virtual realities. In one multicontes- 
tant game, players stalked each other in a surreal cybernetic envi- 
ronment of multicolored platforms and stairways. Armed with a 



THE "TETRIS" SONG 343 

missile-lobbing blaster, they "flew" around and attempted to nail 
enemies (who broke into pieces if hit) before being shot them- 
selves, though occasionally a pterodactyl swooped down from the 
sky and carried them off. 

In his modest office in London, Robert Stein continued to 
struggle to keep Andromeda afloat. He distributed Atari Corp.'s 
computers in England and attempted to take advantage of the 
post-Communist revolution in Eastern Europe, particularly in 
Hungary. He also kept trying to sell Hungarian games in the West; 
perhaps there was another "Tetris" out there. But he had learned 
his lesson: if he found a great game, he would sew up all the rights 
before selling it. 

Henk Rogers made more from "Tetris" than any individual save, 
ultimately, Hiroshi Yamauchi. The Russian bureaucrats at Elorg 
and the Academy made almost nothing, although the Russian gov- 
ernment made millions from the game, mostly from the Nintendo 
deal. They also took in roughly $150,000, all told, from Androm- 
eda, plus advances and royalties directly from Spectrum Holobyte. 

As always, Nintendo did best of all, though it is impossible to 
calculate exactly how much it made from "Tetris," since there is no 
way to measure accurately how much "Tetris" contributed to the 
success of Game Boy. Three million "Tetris" cartridges for the 
NES were sold, plus all those Game Boy units. Once a customer 
bought one, Nintendo could sell more games, an average of three a 
year, at $35 a pop. Not counting Game Boy, "Tetris" brought 
Nintendo at least $80 million. Counting Game Boy, the figure is in 
the billions of dollars (in both 1991 and 1992, Game Boy earned 
nearly $2 billion). 

Alexey Pajitnov made very little money directly from "Tetris" 
royalties or advances. Elorg had made and then canceled a side 
deal that would have granted him the "Tetris" merchandising 
rights (Nintendo eventually got them, too), so he ended up getting 
nothing on the "Tetris" watches, clocks, board games, and the like. 

Westerners criticized the Soviet system that robbed Pajitnov of a 
stake in the game that made so much money for so many people, 
but Belikov defended it. "If Tetris' had been made by a Boeing 
employee on Boeing time and Boeing sold the license, would the 
designer have received any more than Pajitnov?" 



GAME OVER 



On the other hand, if Pajitnov had retained the "Tetris" rights 
and signed a deal typical of those in the United States, he would 
have earned up to 15 percent of net revenues. Pajitnov would have 
seen at least $3 million if he was earning this standard percentage 
of the Soviet government's share. If he had licensed it directly, the 
number would have been as high as $20 million, perhaps more. 
Instead, the Computer Center awarded Pajitnov his own personal 
computer, an IBM AT clone, for which he was grateful since it 
would have taken him sixteen years to be able to buy one on his 
Academy of Science salary. 

Henk Rogers, who came out of the deal with a good relationship 
with Elorg, appealed to Belikov on Pajitnov's behalf in a letter. He 
wrote, "If someone plants an apple tree and it brings you many, 
many apples, you ought to give them some apples — it would en- 
courage them to plant more trees." 

There was no response. The Elorg team was not particularly 
sympathetic. Pajitnov's apartment was nicer than the homes of 
most of his Academy superiors and the Elorg bureaucrats, and in 
addition he had gained recognition throughout the world, far more 
than any Soviet citizen dared hope for. 

It amazed Pajitnov that Americans couldn't believe he wasn't 
bitter. This, he came to realize, was one of the key differences 
between him and most of the people he met in the West, where 
financial reward was the measure of accomplishment. "For me, to 
have my game played everywhere is the greatest thing to know," he 
says. In 1989, he was called to the telephone at the Computer 
Center to talk to a reporter who was writing a story about "Tetris." 
Every question was slanted to make Pajitnov admit that he was 
resentful, but he told the reporter, "I will make my games and send 
them to you. You can fight over them." 

The Soviet Union thawed, and as trade opportunities increased, 
Pajitnov was able to take advantage of the success of his creations 
by licensing games and other programs through several joint-ven- 
ture trading companies that paid small advances and royalties on 
his designs. With the income that trickled in, he bought a car — his 
first, a used Jugoli, a Russian clone of an outdated Fiat. The 
Pajitnov family had something more: Peter and Dmitri, Alexey's 



THE "TETRIS" SONG 345 



sons, had one of the only two Nintendo Entertainment Systems in 
the U.S.S.R., which had been sent by Henk Rogers (the children of 
his friend Vladimir Pokhilko had the other). 

One day in spring 1989, Pajitnov found himself stuffed into a 
tourist-class seat on an Aeroflot flight to Tokyo. Pajitnov, who had 
rarely been out of Moscow, stared blankly out the window. Fever- 
ish from a flu, he couldn't sleep. He watched the spotty clouds 
below him and, below that, the ice blue of the Arctic Ocean, and 
waited patiently to see land. 

At Narita Airport, after claiming his one small suitcase and 
fumbling his way through customs, Pajitnov saw no one he knew 
and grew fearful. Perhaps, he thought, it was all a mistake. He 
spoke no Japanese and only shaky English. It was almost certain 
that no one in this airport spoke Russian, so he waited, staring at a 
large-screen television set up in the waiting area. 

It was some time later that Pajitnov heard his name paged amid 
the Japanese. He found a telephone and shouted his name. Henk 
Rogers was on the phone: "Sit tight. I'm almost there," he said. 

Finally, Pajitnov looked up through the crowd and saw Rogers's 
face behind his familiar thick black beard, and he rose and threw 
his husky arms around his friend. 

Pajitnov wanted nothing more than to sleep off his flu, but Rog- 
ers wouldn't hear of it. Gunning the car, he headed into the mega- 
watts of neon that gave daytime Tokyo a surreal pallor, then 
dragged the Russian into a building and up an elevator, to the 
lookout atop a Tokyo department store. The breathtaking view was 
lost on Alexey, though he was duly awed when Rogers stopped on 
the way home for groceries at a supermarket. There was more food 
than Pajitnov had ever seen in one place. "When you see it in 
movies, you think they put the stuff there just to make it look good, 
and that it's not really like this," he says. He couldn't believe that 
people passed over the incredible goods, picking some, examining 
a box, rejecting fruit because of a scratch or a bruise. His wife, 
Nina, had asked for pictures of Tokyo, so he snapped shots of the 
aisles full of food. Before he left, he bought jeans, a VCR, a small 
color TV, a CD player, a couple of Walkmen, and toys for his 
children with money Rogers had given him. 



346 GAME OVER 



Then they drove through Tokyo to Rogers's Yokohama home, 
where Pajitnov slept off his illness before beginning his three-week 
Japanese adventure. He spent the first week accompanying Rogers 
to the Yokohama BPS offices, where he met with the staff and 
asked a nonstop string of questions about the video-game industry. 
He was amazed at the technical prowess of programmers and of 
their highly sophisticated development tools, and he devoured in- 
formation about how games were marketed and distributed. 

Then Rogers took Pajitnov to Kyoto on the bullet train. The 
Russian wore a necktie — for the first time since his wedding — to 
meet Nintendo executives. He was treated with reverence at head- 
quarters, where he met with the general manager, Hiroshi Iman- 
ishi, as well as the company's marketing director and other NCL 
executives. He also met his Japanese peers — engineers like Gunpei 
Yokoi and his R&D 1 staff, and game designer Sigeru Miyamoto. 

In the afternoon, Pajitnov adjusted his tie and patted his hair 
down before he was ushered into Hiroshi Yamauchi's office, where 
a Russian translator sat with them for a brief, stilted conversation. 
Yamauchi told Pajitnov he hoped he would make another "Tetris," 
and said they should have a long and fruitful relationship. 

Pajitnov did some work at NCL, too. A slightly modified version 
of "Tetris" for Game Boy hadn't yet been approved by him (Nin- 
tendo provided the right of approval that Robert Stein had only 
promised). Testing it, Pajitnov found a programming glitch, and 
worked to correct it with a team of NCL programmers. He was 
taken through the company's development area, and it impressed 
him even more than what he had seen at BPS. Rows of automated 
game-testing machines filled the rooms. Nintendo tested game car- 
tridges that had been manufactured and assembled by a dozen 
competing subcontractors. Eighty cartridges from each batch of a 
thousand were examined. Some were disassembled by engineers so 
the tooling could be inspected, and others were tested electroni- 
cally. If even one of the eighty cartridges had a problem, the entire 
thousand were returned. "It was as rigorous as the military in 
Moscow," Pajitnov said. 

Aside from business, the Russian was taken to restaurants, 
where he drank a good deal of sake and beer. For the first time in 



THE "TETRIS" SONG 3AV 



his life he had a gin and tonic, and he went to a karaoke bar but 
refused to sing. 

Pajitnov first visited the United States in January 1990. The trip 
was sponsored by a joint-venture company he had teamed up with 
in Moscow. His first stop, after changing planes in New York and 
Chicago, was Las Vegas, where the Consumer Electronics Show 
was in progress. Direct from the breadlines of Moscow, he found 
himself a star attraction at the 1990 consumer show, where the 
only lines were for the $3.69 all-you-can-eat buffet at the hotel. 
Lighting a Kool cigarette with an i love las vegas lighter, he 
stared, mouth agape, at the lobby of his hotel. "So this is a typical 
American city," he said over drinks with Gilman Louie. 

After interviews and meetings in Las Vegas, Pajitnov flew to San 
Francisco, where Louie escorted him through a maze of dinners 
and parties. When he had his first taste of Kentucky Fried Chicken, 
it was a profound moment for him, and KFC became his favorite 
American food, a staple when his hosts weren't pushing fancy 
French meals and California cuisine on him. (At Stars, in San 
Francisco, he laughed at the nouvelle version of Russian blini with 
caviar, as pretty as a painting and almost microscopic on the mas- 
sive plate.) He also tried tequila for the first time. "Very enjoy- 
able," he says with a smile. 

Pajitnov's schedule in the Bay Area was hectic. Spectrum 
Holobyte booked four or five interviews a day, but he didn't com- 
plain. "I have to take care of the royalty," he said. He was written 
about in dozens of computer magazines and daily newspapers. He 
also visited Seattle, where he dined with the Arakawas and Lin- 
colns, and then traveled to the East Coast. In New York City, at 
the Modern Art and Metropolitan museums, he saw, for the first 
time in his life, the originals of some of his favorite paintings. It 
was, he says, as thrilling as anything that had ever happened to 
him. He was riveted by paintings he knew intimately from books in 
his Moscow home — Picassos, Braques, Legers. 

In Boston, Pajitnov visited MIT's Media Lab, where he was 
invited to play with a NEXT computer. There were, of course, 
more interviews. After several, he met with a computer-magazine 
photographer at his hotel. When he was left alone with the photog- 



34B GAME OVER 



rapher, the man asked him to change into lighter-colored pants. 
Pajitnov was bewildered; he had no extra clothing with him. Then 
the man handed him a twenty-pound VGA computer monitor and 
asked him to put it on his head. Pajitnov satisfied this unusual 
request; as instructed, he sat on top of a table near a window 
overlooking downtown Boston and balanced a computer monitor 
on his head as the photographer's strobe flashed and camera's 
auto-wind whirred. 

His whirlwind American adventure almost over, Pajitnov flew to 
meet Henk Rogers in Oahu for a vacation, where they swam, 
kayaked, and drank lots of mai tais. Rogers asked Pajitnov if he 
would come to work full-time for BPS in Washington State. Would 
he consider leaving the Soviet Union? 

Pajitnov became quiet and cast his eyes downward. "I do not 
have an answer for that question," he replied. 



5DNIC BOOM \ 



^ 



Between them, Hiroshi Yamauchi and Minoru Arakawa had cre- 
ated a new mammoth industry and, with it, a field for competition. 
Seven American and Japanese companies were marketing video- 
game systems by 1988. But the contenders had little success in 
damaging Nintendo's share of the market, which was 85 to 90 
percent on both sides of the Pacific. Atari sold a handful of its 
5200s and 7800s, and Sega sold a total of 2 million Master Systems. 
Other companies sold too few to count. 

Having failed to break Nintendo's lock on the NES generation 
of video-game systems, the would-be Davids attempted to topple 
Nintendo's Goliath in the next generation with more powerful 
hardware. They took aim at Nintendo's single vulnerability: its 
success. Nintendo was dominant, and such companies tend to stag- 
nate by sticking with old technology. The problem for Nintendo, 
which was raking in a large part of its fortune from licensees, was 
that it had so much invested in the NES-Famicom technology. If 



350 GAME OVER 

the company planned to release a new system, the game-designing 
companies would worry that the NES was obsolete, and the shift 
could precipitate an early crash of its bread-and-butter NES busi- 
ness. 

Nintendo also suffered from a malaise typical of industry lead- 
ers. Fat and happy, it had been lulled into a sense of invulnerabil- 
ity. Yamauchi and Arakawa felt they didn't have to react to 
competitors simply because they were Nintendo. This could have 
been a fatal mistake. 

At first the competitors were like termites gnawing at the base of 
a giant sequoia: merely pests. Nintendo went about its business of 
selling millions of systems and tens of millions of games to a faint 
buzzing sound in the background. 

If there was any threat, according to Yamauchi, it was when 
NEC, the Japanese computer and communications giant, entered 
the video-game business. If NEC was a termite, it was a voracious 
one. With $22 billion in net annual sales, the company was sound 
and well run. Each year it invested a hefty 16 percent of its net 
sales in R&D and engineering programs — $3.7 billion in 1988 — 
more than any of Nintendo's annual net sales until 1992. 

Yamauchi also viewed NEC as a potential threat because of its 
semiconductor business; it had a direct, inexpensive source of 
chips. Most important, NEC had a reputation for maintaining a 
long-term view. Backed by its size and substantial resources, it put 
up a prolonged and ruthless fight for any market it wanted. It had 
done so in personal computers and laser printers, with well-engi- 
neered products and perseverance. It was the tortoise in the races 
it entered, in for the long haul. 

To push its first video-game system, NEC formed a home-enter- 
tainment group and released PC Engine in Japan in October 1987. 
A more expensive system (at $200) was released to the American 
market in 1989. The TirboGrafx-16 was an expandable system, 
with 16 bits of power. 

For a long time, to the kids who comprised the primary video- 
game players, bits and bytes were only slightly more relevant than 
Latin. Then NEC fired the first shot in the battle of the bits. The 
TbrboGrafx-16 had twice as many bits as Nintendo, and kids 



SONIC BOOM 



learned that more bits meant more realistic games, with more and 
brighter colors and awesome sound effects — arcade-quality games. 

The essential computing chip that runs computers and video 
games, the microprocessor, functions like a traffic cop at a busy 
intersection. The processor directs a steady stream of information 
(from other integrated circuits and programs) at the busiest inter- 
section in town to wherever it needs to go in order to make the 
computer and program function. The net result of all the high- 
speed traffic is, say, a high jump by Super Mario to the accompani- 
ment of an electronic cymbal crash. 

An 8-bit processor, such as the one at the heart of the NES and 
Famicom, can work with 64K (that is, 64,000) strings of informa- 
tion that are eight characters (or bits) long. Each bit is actually an 
electric impulse that is either turned on or off. A one means on; a 
zero means off. Each message is unique, depending on the specific 
configuration of the eight ones and zeros. 

A 16-bit processor reads messages made of sixteen bits — that is, 
sixteen ones and zeros. It can, therefore, "understand" and process 
250 times more messages — 16 million. It means, simply, that a 16- 
bit machine can do a lot more, and do it a lot faster, than an 8-bit 
machine. 

When NEC launched the TurboGrafx-16, video-game players 
were impressed with the meatier, more textured feeling of the first 
games. There was, however, a flaw in the more-is-better logic be- 
hind the new technology, and NEC learned the lesson the hard 
way. While its powerful system played games with better graphics 
and sound, NEC hadn't improved its video games. They were not 
as much fun. In the end, NEC's 16 bits could not compete with 
"Tetris," "Super Mario Bros.," "The Legend of Zelda," and hun- 
dreds of other great Nintendo games. In spite of its clout, less than 
1 million TUrboGrafx units were sold. For all their technical prow- 
ess, NEC's machines could be no better than the software that ran 
on them, and NEC had limited access to good games. "Bonk's 
Adventure," in which a bantam-weight caveman bounces his way 
through a Paleolithic paradise, was a good game that accounted for 
many TurboGrafx sales, but most of the credit-card-size cartridges 
NEC released were unexceptional. Since it had no experience 
making games, it depended on third-party developers to build a 



GAME OVER 



library. But the best entertainment-software companies were too 
busy making Nintendo games to bother making ones for 
TurboGrafx. 

Still, NEC probably could have gotten the support of some soft- 
ware companies if techies in the industry had been truly excited by 
the TurboGrafx- 16 technology. Some companies specialized in 
software for the state-of-the-art technology regardless of its lim- 
ited market. What designers and programmers found, however, 
was that TurboGrafx was only incrementally better. NEC adver- 
tised its system as a 16-bit machine, but actually it had an 8-bit 
processor that was souped up to emulate 16 bits. "It's going to run 
out of gas," said one software engineer. 'The technology has se- 
vere limitations. It is not a true 16-bit system." Since the designers 
weren't excited about the machine and the installed base was so 
low, for the most part NEC could get only bottom-of-the-barrel 
software. TurboGrafx turned out to be no threat and Yamauchi 
relaxed. 

Sega never was a threat as far as Yamauchi was concerned. The 
$700 million Japanese company — founded, curiously enough, by 
an American — had a reasonably successful history in the video- 
arcade business in Japan and the United States, but it seemed too 
small and too specialized to make inroads into Nintendo's vast 
consumer business. Sega had released the Master System as a 
competitor to the Famicom and NES but never gained more than 
5 percent of the market. Although it, unlike NEC, was an able 
software company, it never seemed to be playing in the same 
league as Nintendo. 

Yamauchi underestimated Sega, whose executives understood 
the importance of software to drive hardware sales. This philoso- 
phy was built into the company's 16-bit contender, the Genesis, 
which it launched in 1989 in Japan (1990 in the United States). 
Genesis was the first dedicated video-game system powered by a 
true 16-bit processor; it had the same 68000 processor that ran the 
Macintosh computer. Sega had simply taken the design of its 16- 
bit arcade machines and adapted it for Genesis. It could therefore 
boast not only such 16-bit features as high-definition graphics and 
animation, a full spectrum of colors (more than 500), two inde- 
pendently scrolling backgrounds that created impressive depth-of- 



SONIC BOOM 353 

field, the illusion of three dimensions, and near CD-quality sound, 
but also a proven software catalogue: Sega's arcade hits. As a 
peripheral to the Genesis, Sega also released a unit called the 
Power Base Converter. For $35 it allowed Master System games to 
be played on the Genesis. 

Sega got a reputable distributor in America (Tonka), spent 
$10 million in advertising, and set out to fell Goliath. The machine, 
priced originally at $199, was launched on the strength of software 
titles that kids who hung out in arcades already knew. One was 
"Altered Beast," a brutal game in which a hero metamorphoses 
into a werewolf, weredragon, and werebear, gaining the powers of 
the revolting creatures he kills. Sega attacked Nintendo head-on. 
"Sega Genesis does what Nintendon't," its slogan read. 

Competition was exactly what Nintendo and the video-game in- 
dustry needed, though Nintendo was unlikely to acknowledge this. 
The American automobile industry had floundered in the absence 
of competition. In the 1920s there were 181 American automobile 
companies. As the Big Three gobbled them up, replacing what had 
been a vibrant industry with a small club, competition declined, 
and with it went the American auto industry. In Japan there re- 
mained nine strong automobile manufacturers in a cutthroat, com- 
petitive environment. Competition kept innovation moving at a 
fast clip; there was no time to waste, no room for stagnation. 
Nintendo, however, stuck with its haughty above-the-fray posture. 
"We listen to our players," Bill White told the press. "They tell us 
they are extremely happy with the existing system and are totally 
involved with the games. We haven't maxed out our 8-bit system 
yet." This attitude left the company in the dust of the 16-bit war. 

At first the market reinforced Nintendo's confidence. During 
the first two years Genesis was on the market, Nintendo sold 18 
million 8-bit systems in America. Sega's arguments for 16 bits 
weren't supportable. The first Genesis games, even the knock-offs 
of the arcade hits, were not as much fun as the best Nintendo 
games. In many cases, the Sega programmers were so intent on 
exploiting the possibilities of detailed graphics and exciting sound 
that they forgot what made great video games. 

The company spent multimillions to sign Michael Jackson, him- 



354 GAME OVER 



self a video-game fanatic, to a contract to codevelop "Moon- 
walker," a game based on Jackson's 10-million-selling album, Bad. 
Jackson worked with Sega's Al Nilsen, who ran the marketing of 
the American home video-game operation, to come up with a story 
line for a game. Sega programmers created it, and Jackson helped 
fine-tune its features. The plot loosely re-created the Moonwalker 
video, in which Jackson did his trademark fancy dancing and, 
meanwhile, saved some of his young friends. At the end, he turned 
into a menacing robot. 

The final product had remarkable visual and audio touches. 
Jackson's face and dance moves were digitized; there were elec- 
tronic re-creations of half a dozen of the songs from the album and 
Jackson's digitized voice — incessant whoops, yeahs, and oooo's. 
When he danced on piano keys, the piano "played." 

When the game was released, Sega sold a sizable number of 
Genesis systems because of the Jackson name and its state-of-the- 
art appearance. However, in the end, "Moonwalker" had a fatal 
flaw: it was repetitive and boring. Flash was no substitute for sub- 
stance. 

The Genesis continued to flounder through its first couple of 
years on the market, although Sega showed Sisyphean resolve. It 
sold machines to anyone it could, mostly to older boys who were 
diehard video-game buffs. They were the kids who insisted on 
having (and could afford to have) both the NES and the cutting- 
edge machine. Sega released some better games and sold more 
systems — a hundred thousand here, a hundred thousand there. 
The sawier kids extolled the virtues of 16 bits and scoffed at the 
dweebs still playing Nintendo. The result was that Sega began to 
embody cool. NOA commissioned a study that confirmed it: 
younger kids and girls liked Nintendo, but the trendsetters in the 
video-game world, young teenage boys, were talking Genesis. 

Sega built on the growing buzz by learning from the Michael 
Jackson experience and making licensing deals that produced 
high-profile games that were also challenging and fun. Working 
with sports celebrities such as Arnold Palmer and Tommy Lasorda, 
the Sega designers figured out ways to take advantage of the Gene- 
sis's 16 bits for "deeper"— more complex — games. The resulting 
games were superior to the ones on the NES. Joe Montana signed 



SONIC BOOM 



on for a reported $8 million, and Sega released a great football 
game. Its sequel, "Joe Montana 2: Sports Talk Football," had run- 
ning commentary by a semirealistic-sounding announcer who 
screams, "Montana drops back. He's got a man open. . . . He 
passes. It's — no good. Incomplete. " Behind him is the sound of a 
wall of cheering fans. 

Sports games and arcade knockoffs remained Sega's strong 
suits. Yet by and large, its designers came up with great-Zoofcrng 
games — better than any that had been seen to date — but not great- 
playing games. Examples were those that came out of Sega's licens- 
ing agreement with Disney, such as "Fantasia" and "Castle of 
Illusion," both featuring Mickey Mouse. "Fantasia" had rousing 
classical music from the film and great-looking Sorcerer's Appren- 
tice brooms that danced. In "Castle of Illusion," the expressiveness 
in Mickey's face set a new standard for video games. However, 
they weren't that much fun to play. Sega was missing what Hiroshi 
Yamauchi had long before acknowledged to be the most important 
single asset of a video-game company: "one true genius." It 
needed a Sigeru Miyamoto or an Alexey Pajitnov. 

While Sega hoped for a "genius" to emerge, it got an enormous 
boost from its first third-party licensee. Although its base of 1 mil- 
lion systems paled in comparison to Nintendo's, THp Hawkins of 
Electronic Arts calculated that Sega had created a promising mar- 
ket, one for which the price of admission was far less than Nin- 
tendo's. There was little competition — the software companies in 
the video-game business were all after Nintendo's 70 million play- 
ers — and the million people who had invested in the Genesis were 
dying for good games; indeed, they were demanding more games 
than were owners of personal computers. 

Hawkins met with the Sega chiefs, who planned to initiate a 
licensing agreement with similar restrictions and fees as Nin- 
tendo's. Hawkins refused — Sega wasn't big enough to throw that 
kind of weight around. EA engineers had succeeded in reverse- 
engineering the Genesis without using any confidential informa- 
tion, and Hawkins maintained that he would release games for 
Sega with or without a license. 

Determined to maintain a stake in the Genesis software market, 
Sega said it would sue. To avoid "a pissing contest," Hawkins says, 



356 GAME OVER 



particularly since both companies had a common goal — to advance 
the Genesis marketplace — he agreed to enter into a licensing 
agreement under terms he found acceptable, far less restrictive 
(and costing less) than those for a Nintendo licensee. 

EA's stock crept up as it shipped its first Genesis games in 1990. 
The next year it shipped nine more, four of which shot onto the list 
of the top-ten bestsellers. Having hedged his bets — he had also 
become a Nintendo licensee — Hawkins thrived in the Genesis 
market and made a killing. A quarter of EA's sales in 1990 were 
from Genesis games. 

The Genesis's 16 bits meant that EA could convert some of its 
floppy-disk bestsellers to the Sega system. EA released "John 
Madden Football," which went up against Sega's "Joe Montana 
Football," and an impressive list of other games, from an award- 
winning martial-arts game called "Budokan" to a gory version of 
Will Harvey's "Immortal," in which 16-bit graphics allowed some 
particularly repulsive blood and guts. 

Other software companies signed on (reportedly with less liberal 
licensing deals than EA's but still preferable to the Nintendo 
straitjacket), though many Nintendo licensees feared retribution 
by Nintendo. EA took the risk, gambling (successfully, it seemed) 
on the Sega technology, and some other software companies went 
to Sega because they had nothing to lose. Tengen, for one, out of 
the Nintendo business pending its litigation, jumped in with a se- 
ries of Genesis games (licensed this time; it could afford no new 
lawsuits). 

With each new convert Sega was more and more legitimized. 
Fueled by games released by licensees, the list of Genesis software 
grew — good software, to be sure, but no "Super Mario Bros." 
Sales of the Genesis hardware also grew, so that by mid 1991, there 
were well over 1 million in use. By then NOA had sold 31.7 million 
units in the United States, but Sega had established itself as the 
market leader of the next generation. Mighty Nintendo, which had 
announced that it would enter the 16-bit market only when it was 
good and ready, was in trouble. 

Hiroshi Yamauchi had had a 16-bit system in the works for 
years. Masayuki Uemura, in charge of the top-secret project, had 



SONIC BOOM 357 



been experimenting with a follow-up to the Famicom-NES since 
the late 1980s. Yamauchi left the technical specifications to the 
engineers, but he did insist that his company must be poised to 
jump into the 16-bit market by 1990. There was no perceived ur- 
gency, however; the NES was flying so high that Nintendo felt no 
pressure to rush. 

One issue that Yamauchi made the engineers consider was the 
compatibility of a new system with the hundreds of millions of 
Nintendo games in circulation. New-generation hardware was al- 
ways resisted if it made old software obsolete. Yamauchi correctly 
anticipated a backlash against Nintendo, particularly from parents, 
if its new machine couldn't play the libraries of games collected for 
its 8-bit technology. 

Uemura accomplished many feats in his design of the new Super 
Family Computer (dubbed the Super NES, or SNES, in the West), 
but one of them was not compatibility. The cost would have been 
too high — at least $75 would have been added to the price of each 
unit. Uemura found that a major leap in technology was, almost by 
definition, not compatible with old technology. 

Arakawa and Yamauchi discussed the problem and decided they 
could deal with backlash generated by the compatibility issue. Af- 
ter all, consumers were buying CD players even though the new 
technology wasn't compatible with their libraries of tapes and 
records. Arakawa insisted that video-game customers would do the 
same. 

Uemura had better luck with other features of the new system. 
Around the central processor were special chips for sound and 
extremely high-resolution graphics and video. The new SNES 
could generate many more colors than the Genesis's 512 — 32,000 
in fact, many of them barely distinguishable (especially on most 
televisions). This would be important, however, when video games 
began to incorporate real film footage. There was also a math 
coprocessor that allowed the hardware to do some of the work 
normally done by software and would make it easier to create 
games for the new system. Like the Genesis, the SNES could dis- 
play several layers of backgrounds so that it could create the illu- 
sion of three dimensions. It also had the capability to generate 
(and move) large objects on the screen, and many more things 



GAME OVER 



could happen simultaneously in a game. It also had one other key 
feature: an improved version of the patented Nintendo security 
chip. 

The Japanese version of the Super system was made to look 
somewhat like the original Famicom, but Arakawa had a different 
version designed for the United States. Don James and product 
designer Lance Barr sought a balance so that it would be sleek 
enough — Arakawa said it had to fit in next to a VCR — and accessi- 
ble. The Genesis was housed in a black box with rounded edges. 
James and Barr came up with a far more elegant gray with right 
angles. Their colors represented the images of the respective ma- 
chines. The Genesis, in black, was the outsider, the heavy metal of 
video-game machines. The SNES, sleekly styled in gray, was com- 
mercial and pop. 

As "Super Mario" had sold the NES and "Tetris" had sold 
Game Boy, Yamauchi and Arakawa had to decide what game 
would be used to spark sales of the SNES. In the end there was no 
real debate. "Super Mario Bros. 3" had been the most successful 
video game in history. What would convince more buyers to cough 
up $200 for a new system than "Super Mario Bros. 4"? Sigeru 
Miyamoto was assigned to create it. 

After the exhausting months of completing "SMB3," 
Miyamoto's team had taken fifteen months off to do nothing but 
conduct technology experiments to explore the outer reaches of 
the SNES. He and his thirty-person team were still scratching the 
surface of the machine's potentials when he was asked to press 
forward on a game that would show off the 16-bit bells and whistles 
and improve on "Super Mario Bros. 3." It was an onerous assign- 
ment, made more difficult by the undisguised pressure to succeed. 
"Super Mario Bros. 4," renamed "Super Mario World," was sup- 
posed to be so great that there would be no question when it came 
to choosing a 16-bit platform. 

"There's no emotion in a game," Tony Harman says. "It's all 
ones and zeros; we're creating illusions. The magic comes from 
inspiration. . . . The best of the rest of the efforts can be no 
better than second best." 

Miyamoto set to work to create sleight of hand beyond any he 



SONIC BOOM 



had managed before, and he did manage some great innovations. 
Still, when it was completed, "Super Mario World" was disappoint- 
ingly similar to its antecedents. Mario had new skills, and the game 
offered some fascinating innovations. There were opportunities 
throughout it for players to hone new skills — first in nonlethal, 
then in semilethal, and finally in dangerous situations. To en- 
courage players to enjoy Mario's ability to fly, for example, 
Miyamoto designed a world with no enemies where players could 
practice in a sky filled with coins. Every hundred coins were good 
for a free life, so there was plenty of incentive to wallow there, take 
a running start, pump the A button, and take off. 

Miyamoto also made the game nonlinear — a player could return 
to different worlds at any time — and there were other touches that 
seemed as if they would lead to future developments. However, 
"Super Mario World" wasn't a sufficient departure from its prede- 
cessor. "People don't know how to write 16-bit software yet," Greg 
Fischbach said at the time. "It will be revolutionary, but it will take 
some time to understand." There would be more lifelike and emo- 
tion-filled games because of 16-bit processors. Miyamoto says, 
"Wait, and I will learn more about the limits of this machine." In 
the meantime, "Super Mario World" was a disappointment, partic- 
ularly when it was compared to a new game that was released for 
Sega's 16-bit system. 

An independent development team contracted to Sega came up 
with "Sonic the Hedgehog," a game featuring a cute creature who 
impatiently tapped his foot — er, paw — when the player took too 
long to act. Impatience was Sonic's essential characteristic: he had 
places to go — and quickly. He zipped along, collecting brass rings 
when he could find them, before rolling up into a ball and flying 
down slides with loops and underground tunnels. For the player, it 
was like a roller-coaster ride. Sega pronounced "Sonic" the fastest 
video game in history. It had finally found its Mario. 

"Sonic" was not a great game, but it was novel, the character was 
likable, and it had good graphics and a bouncy musical score. Like 
so many games, it was plagued by repetition, but with not much 
competition at that time from Nintendo or any licensees, "Sonic" 
took off and sold hundreds of thousands of Genesis systems. Best 



3BO GAME OVER 



of all for Sega, "Sonic" was there to mock Nintendo's launch of its 
Super system. 

In spite of Sega's growth, Nintendo believed it would release its 
Super systems in Japan and America and easily do away with the 
Genesis, "Sonic" and all. Sega may have stockpiled cash ($400 
million) and earned a cooler-than-Mario reputation, but this was 
only because Nintendo hadn't yet entered the field. Finally it an- 
nounced plans to release its 16-bit machine. The announcement 
was, in large part, a warning to would-be Genesis buyers not to 
make a mistake they would regret. 

The actual launch began a year later in Japan, where anticipa- 
tion of the new system was rabid. In late October 1990, there were 
rumors that the Super Family Computer was coming, and stores 
were inundated with calls. As soon as Hiroshi Imanishi informed 
his sales team that a shipping date was forthcoming, some stores 
began taking orders. The Hankyu department store in Osaka an- 
nounced that it would accept "reservations" beginning on Novem- 
ber 3. A week later it had accepted more than it would be able to 
fill and stopped accepting orders. Other stores announced lotter- 
ies, and some had customers pay the 32,000 yen (about $200) for 
the system plus "Super Mario World" in advance. 

Yamauchi and Imanishi jointly directed Operation Midnight 
Shipping, which commenced in the wee hours of November 20, 
1990. Kenji Takahashi, in his recent book on Nintendo (Light and 
Shadow of an Enterprise That Surpassed Matsushita and Sony), de- 
scribed the secret transport: "On a night in the fall . . . with the 
wind blowing through the Kyoto Basin, adding a considerable chill, 
an unusually large number of over-sized ten-ton trucks congre- 
gated at a warehouse in the city. Workmen quietly loaded the 
trucks, which then disappeared, one by one, into the darkness of 
the sleeping town and onto the state highway. . . . 

"At the same time, other trucks departed from warehouses 
throughout Japan. The last truck left the last warehouse as dawn 
was breaking." 

All the secrecy was to head off thievery, Hiroshi Yamauchi sub- 
sequently revealed. A yakuza ring was rumored to be planning to 
hijack some of the trucks. Worth their weight in gold, the goods 



SONIC BOOM 361 



would have ended up in mob warehouses, from which they would 
have been parceled out to special customers. Fearing leaks, the 
Nintendo executives informed their staff about the details of Mid- 
night Shipping only on a need-to-know basis. Similarly, only the 
key people expecting shipments were told when the trucks would 
arrive. When they did appear, carefully predetermined allotments 
of systems and software were parceled out. 

The hundred trucks, each loaded with three thousand Super 
Family Computers and boxes of the first two Super Famicom 
games, "Super Mario World" and "F-Zero" (a racing game), had 
dropped off their secret cargo by the end of the business day on the 
twentieth. The next morning, store managers braced themselves 
before announcing that the next Nintendo generation had arrived. 
If high drama was part of the marketing plan, it worked. One 
department store closed down its toy department by 11:30 a.m. 
because it feared a riot. A small toy store on the main street near 
the Shakujii Koen train station in Tokyo received only six units. "It 
was not enough to meet even the request from our neighbors and 
the children of our friends," the elderly store owner reported. "As 
we would have been embarrassed to turn down our friends, we 
closed the store and posted a notice saying that we had taken a 
trip." 

Three hundred thousand Super Famicoms were delivered that 
night, though the orders numbered 1.5 million. Four out of five 
customers were disappointed, including some who had paid in ad- 
vance. It was a mess, although Hiroshi Yamauchi enjoyed hearing 
that the full supply was gone by the third day. A total of 2 million 
Famicoms were sold within six months, and over 4 million within a 
year. 

The U.S. launch was trickier. The NES market had already 
peaked for a number of reasons, among them the fact that the 
United States was in an economic recession. But what was even 
more relevant was that Nintendo had reached relative saturation 
of its largest group of buyers, households with young boys. The 
arrival of the 16-bit generation of technology diverted some poten- 
tial customers and deterred others who decided to wait and see 
what happened before choosing a system to buy. Another factor 
was that neither Nintendo nor any licensee had released any super- 



362 GAME OVER 

hot, must-have game since "Super Mario Bros. 3" and "Teenage 
Mutant Ninja Turtles" (although "The Simpsons," released by Ac- 
claim, designed in collaboration with Matt Groening, was one of 
several big sellers during this period). For all these reasons, there 
was to be no Operation Midnight Shipping in the United States. 
Nintendo had its work cut out for it if customers, en masse, were to 
be convinced to shell out $200 for the new system. 

Peter Main and Bill White stepped in with a marketing blitz. 
TWenty-five million dollars was spent on TV commercials for the 
September 1991 launch, and Gail Tilden at Nintendo Power — 
which then had about 1.2 million subscribers and 4 million readers 
— hyped the SNES shamelessly. There were also SNES promo- 
tions with Pepsi ($8 million worth), Kool-Aid, and other compa- 
nies. 

Parents, the media reported, resisted. "I have spent about 
$1,500 on Nintendo and Nintendo games," said one father, quoted 
in a San Francisco newspaper. "I said, 'No way!' " Compatibility 
reared its head as an issue, just as Minoru Arakawa had feared. 
"They made a new system that didn't play any of the old games so 
we would have to start all over," another parent grumbled, admit- 
ting that nonetheless he had succumbed. 

The comic strip called "Foxtrot" by Bill Amend re-created a 
debate heard around the country. 

jason: Pleeeeeeease? 

mom: Jason, no! You already have a Nintendo machine! 
jason: But this one's got 16-bit graphics . . . digital stereo sound 
. . . the latest Mario cartridge. 
mom: And a $200 price tag. 
jason: Hey, nobody said eternal bliss comes cheap. 

A headline in Scottsdale, Arizona, read: Nintendo risks parental 

WRATH WITH NEW SYSTEM. In Chicago: NINTENDO COUNTS ON THE NAG 

factor to sell super system. In San Rafael, California: new Nin- 
tendo A COSTLY PAIN FOR PARENTS. 

For the previous year (1990), the average amount of money 
spent on toys per child in America was about $225, according to 
Jodi Levin, a spokeswoman for the Toy Manufacturers of America. 
Since the year of the SNES launch, 1991, was a recession year, the 



SONIC BOOM 



figure wasn't likely to go up. The question was whether parents 
would spend almost all of their kid's Christmas budget on one toy. 
But by October 1991, despite predictions of an extremely bleak 
Christmas, Nintendo had decided it was going to make its goals for 
the SNES debut. It claimed it would sell all the SNES units it 
shipped in those first four months — 2.2 million, according to the 
company. Peter Main was claiming he could sell twice as many if 
NCL were able to meet the demand. 

These claims were disputed by Sega and some store owners, who 
said that they didn't sell out their stock, although others reported 
extremely good sales. Toys "R" Us's stock tentatively crept up on 
the strength of SNES sales. So did Babbages' stock. By the end of 
1991, Nintendo claimed to have already sold more systems in four 
months than Sega had sold in two years. Sega's Al Nilsen argued 
that Nintendo had sold through only 1 million, 1.2 million at the 
most. Sega, he said, had sold 1.4 million machines during the same 
period, making the total number of Genesis systems in homes 2.3 
million. 

At the January 1992 Consumer Electronics Show, Nintendo 
boasted that it had already blown Sega out of the water, and, as 
Peter Main put it, "You ain't seen nothin' yet." He announced 
sales predictions for the year: 6 million SNES units in the United 
States. According to the company's calculations, this would bring 
total sales to 8 million, not a bad start considering that the original 
NES had sold only 1 million in that amount of time. Most industry 
watchers believed these figures were slightly optimistic, an attempt 
to jump-start sales by creating a bandwagon mentality. The fact 
was that SNES had little chance of approaching the NES's success 
since Sega had already assured that Nintendo wouldn't have the 
market to itself. 

Sega lowered the price of the Genesis to $149 and the system 
was packaged with "Sonic the Hedgehog," which continued to 
propel sales. The game's immense popularity took Sega by sur- 
prise, but the company ran with it. It didn't quite stop the SNES in 
its tracks, but it gave both Nintendo and customers pause. Sega 
boasted that in a test conducted by a market-research firm, seven 
out of ten kids preferred "Sonic" to "Super Mario World." 

In the Atari Corp. trial, which continued through the winter of 



364 GAME OVER 



1991-1992 in San Francisco, Arakawa was asked, on the stand, if 
the inventor of "Sonic the Hedgehog" was a genius — like 
Miyamoto, the inventor of "Super Mario Bros." Arakawa cagily 
answered, "Yes," and then qualified it. "They looked at 'Super 
Mario.' They wanted to come up with something similar." Howard 
Lincoln would admit, however, "They came up with a darn good 
game. They're going to be a very strong competitor." 

A Sega press release was headlined sega confronts Nintendo in 
$1 million ad roadblock. Their television commercials, which vied 
for airtime with Nintendo's massive ad blitz, showed a kid resisting 
a pushy salesman's attempt to sell him the more expensive SNES. 
"Super Mario World" looked timeworn compared to "Sonic the 
Hedgehog," the game playing on a nearby monitor. The ads ran 
with Beverly Hills 90210, Cosby, and The Simpsons. 

"This is war," boomed Sega's Al Nilsen, who steered and 
cheered the battle. It was the company's first and probably only 
chance against Nintendo. Sixty percent of his customers had de- 
fected from Nintendo, and Nilsen planned to keep them. His ads 
featured the "Sega advantage," 100 software titles for Genesis 
(made by Sega and twenty third-party developers) as compared to 
a mere handful for the SNES. 

The close of 1992 through 1993 would have a great deal to say 
about the disputed figures released by both companies. Analysts 
and retailers predicted that a total of some 10 million Genesis and 
SNES systems would be sold by the end of 1992, with the two 
companies in a virtual dead heat. If this occurred, it would be a 
rousing victory for Sega, which could then continue a head-to-head 
battle. If Nintendo ended up way ahead, the status would remain 
quo. Nintendo would still control perhaps 75 to 80 percent of the 
market, and Sega would be a modest number two (though certainly 
stronger than before). 

Choosing sides or attempting to play both against the middle, 
the licensees had a major stake in the competition. Nintendo's 
licensees continued to release NES titles — the market had weak- 
ened, but 35 million games for the NES and another 25 million 
games for Game Boy would sell in 1992, according to the com- 
pany's predictions — and most signed up to make SNES games. 



SONIC BOOM 3B5 



Nintendo planned to sign up 100 SNES licensees so that the 
SNES-Genesis game gap would cease to be an issue. 

In the United States NOA sought to control the quality of its 
new licensees' product in a unique way. There was no longer an 
exclusivity clause (in part, at least, because of the FTC and the 
antitrust cases pending). Instead, Nintendo would allow licensees 
to make three games a year. But it also built in a strong motivation 
for companies to make excellent games: games that earned thirty 
or more points in the Nintendo rating system didn't count as one 
of the three games. Also, a more objective method for choosing 
what games would be covered in Nintendo Power was initiated: only 
those games with thirty or more points would be featured. 

Some SNES licensees, as with NES licensees, would still buy 
cartridges from Nintendo, but some could manufacture their own 
games (they would, of course, still buy security chips from Nin- 
tendo). Acclaim contracted with a Spokane, Washington, company 
called Keytronics to manufacture games. Nintendo still earned its 
high share of sales, a 20 percent royalty based on the wholesale 
price, and this didn't include the security chips, which cost $1 
apiece. 

Although the new contract didn't restrict companies from re- 
leasing games for other systems— Electronic Arts released "John 
Madden Football" for the SNES and Genesis— there was specula- 
tion about whether Nintendo would ultimately exert the same kind 
of control, overt and covert, that it exerted over 8-bit licensees. 
Would Nintendo seek to hurt companies that aided and abetted 
Sega? Ratings of games would be one measure: Would it use its 
rating system, which presumably would continue to correlate with 
sales, to hinder companies that also released their titles with Sega? 
There were additional fears about the subtle ways in which NOA 
continued to "influence" distributors and retailers. The SNES was 
available in 16,000 retail outlets its first four months out, while the 
Genesis was only in 8,000 (although Sega later raised this number 
to 11,000). 

Most Nintendo licensees liked the idea of competition between 
Nintendo and Sega, even though it meant they had to make 
choices about which system to support— or whether to support 



3BB GAME OVER 



both. The attitude of some licensees was that anything that weak- 
ened Nintendo was good news. Part of this was resentment — it was 
always good to see a tyrant fall — but part was that it strengthened 
their positions. Whereas they had originally come to Nintendo hat 
in hand when they wanted to become NES licensees, now Nin- 
tendo needed them. Nintendo had to have a strong library of 
games to beat Sega, and the licensees were key. 

In spite of their discreet rooting for Genesis, the licensees found 
neither openness nor benevolence at Sega, whose own licensing 
terms got tougher until they appeared to be nearly as strict as 
NOA's. The only thing some licensees had going for them was that 
they were being wooed by both Nintendo and Sega, which gave 
them some negotiating power. "As often happens, a revolutionary 
accomplishes a coup and becomes the next despot," a licensee 
said. "Sega was as bad as Nintendo because Sega wanted to be 
Nintendo." 

Nevertheless, the competition between the two companies al- 
lowed software companies a kind of independence they hadn't had 
when NOA was the only game in town. It was analogous to the 
computer industry, where Microsoft and Lotus were cleaning up 
by selling software that ran on all the warring hardware makers' 
machines. The game software companies won whether Nintendo 
or Sega, or neither, ended up victorious. Electronic Arts was in the 
position to be the video-game industry's Microsoft. 

"If Nintendo achieves its stated goals, this machine will almost 
double the market for 16-bit entertainment software in the U.S. in 
1991," said Bing Gordon of Electronic Arts. "EA should be well 
positioned to take advantage of this new market, with our proven 
16-bit properties from Genesis and PC formats." Larry Probst 
noted that he expected the Super system to add $4 million to his 
company's sales in 1991 and $10 million in 1992. Continued growth 
was anything but guaranteed, however. In 1991 short-sellers were 
betting that Electronic Arts would be a casualty of an Atari-like 
crash. They said that EA stock should trade at a single-digit toy- 
company multiple rather than at the "lofty double-digit multiples 
enjoyed by software companies like Microsoft," according to Eben 
Shapiro in The New York Times. Even stock analysts who were 
supporters were nervous. 



SONIC BOOM 367 



EA's leaders, of course, claimed they had ever more tricks up 
their sleeve. The issue, Bing Gordon said, was whether EA could 
become "a $500 million company with a $50 stock in four years." 
Its position with the 16-bit platforms, plus CD systems of the fu- 
ture, made it a good bet. Gordon predicted that by 1995 companies 
like his would have strategic alliances with a Sony or a Matsushita, 
or be acquired outright by the consumer giants. 

As the early months of the contest rolled by, SNES sales re- 
mained healthy, though nowhere near as strong as NES sales had 
been at their peak. The trade press remarked upon it as if they had 
found a chink in Nintendo's armor, and indeed, the first round of 
the 16-bit war proved that NOA was no longer infallible. The 
future was up for grabs, although there was one certainty: it would 
be a mistake to discount prematurely the Arakawa-Main market- 
ing force and the resolve of Hiroshi Yamauchi. 

In a lapse of his ability to foresee the long-term future, 
Yamauchi had realized too late the importance of sewing up the 
16-bit market, even at the expense of some 8-bit sales. At stake was 
more than the $10 billion-plus that consumers would spend on 
video games in 1992 and the escalating amounts predicted for the 
following years. The video-game industry was changing. It had 
found itself at the center of a new industry, fast emerging as the 
consumer-electronics and home-computer industry of the future. 

Multimedia was the buzzword in the consumer-electronics and 
computer industries as they entered the last decade of the twenti- 
eth century. Definitions of multimedia varied widely, but there was 
a shared certainty that the new technology would bring together 
such media as television, video games, stereo, and the VCR in 
combination with a high-volume storage device (a compact-disc 
player) and a central processor. Other components could be 
added, such as a digital photograph reader or a printer. A cable- 
television receiver, one that would manage and search through the 
thousand cable stations of the future, would probably be incorpo- 
rated too. Key to all the elements that defined multimedia, how- 
ever, besides the television screen, was the computer. It would be 
the clearinghouse of the huge amounts of audio and visual infor- 
mation and allow people to interact with it all. 



368 GAME OVER 



Multimedia at first would offer higher-quality entertainment, 
whether stereo television or video games with CD-quality sound, 
ultrasharp graphics, and intricate animation. The biggest aid to 
sales of multimedia machines would probably be feature movies 
when they became widely available on CDs instead of VHS tape 
cassettes, since the quality of movies on CDs would be so superior 
(and because CDs, unlike VHS tape, would never degenerate). 
Advances in technology would have to occur — in the field of image 
processing and in data compression techniques — before movies 
would play on CDs, but they were coming (Sony showed off early 
versions in January 1992). 

Movies, however, would be only the beginning. Television view- 
ers had lots of options in the late twentieth century — dozens of 
cable stations, prerecorded videotapes, home movies, network TV, 
video games — but multimedia would bring an astounding array of 
choices. "There will continue to be more and more competition for 
percentages of time on the TV screen," predicts Trip Hawkins, an 
early multimedia visionary. 

Multimedia would bring about interactive media, so that viewers 
could influence the outcome of films or television programs, for 
instance. Entertainment and education would intersect in novel 
ways, too, many of them still unimaginable. All media would have 
an essential new character: they would not have to be linear. 
"Viewers" of movies, television programs, and electronic books 
would no longer be passive. They could choose to sit back and 
watch a National Geographic special on the Andaman Islands, or 
choose to become involved, "paging," in any order, through sec- 
tions of the program that were of interest. They could watch foot- 
age of the alcyonarians that dance below the giant sponge forest, 
or observe the remarkable spectacle of elephants swimming be- 
tween islands. A boat trip between the islands could be experi- 
enced from the perspective of a passenger, who could choose 
where to stop and what to explore. It would be something like 
"playing" a movie as if it were a video game. 

CDs would completely transform video games. Whereas an ex- 
pensive, high-powered Nintendo or Sega game cartridge filled with 
RAM chips could have 8 or 10 megabytes of game instructions, an 
inexpensive compact disc could have more than half a gigabyte. All 



SONIC BOOM 369 



this mass storage could be filled with digitized full-motion video, so 
that games would feel more like movies, with incredible, lifelike 
sound, including symphonic music and real (digitized) human 

voices. 

Multimedia video games could be either far more realistic, or 
else completely out of this world. Graphics and sound effects 
would be light-years ahead of those on 16-bit cartridge games. Just 
as soundtracks transform the experience of watching a movie, 
games could be made far more compelling with richly textured 
scenery, whether a jungle or an animated wonderland, and sound 
effects— jungle sounds or bone-chilling screams— would be realis- 
tic and intense. 

CDs would also mean that an enormous spectrum of video 
games would be far less expensive to manufacture. Whereas a 
Nintendo game cartridge costs manufacturers $12 to $16, a CD 
would cost them $1 or $2. The difference would mean that soft- 
ware companies could proliferate and make games that appealed 
to small audiences. While no company would risk an investment in 
a Nintendo game about stamp collecting or an electronic version 
of canasta, many of them would if the cost of manufacturing were 
much lower. There would be CD games based on everything from 
self-help books to authentic archeological expeditions to lawn 
bowling to simulated sex. A new market would result: people who 
had never considered playing video games before. 

Games could include layers of fantasy, intrigue, and challenge 
that were formerly inconceivable. The technology that would re- 
move the wall between the game player and the game was in its 
infancy. Futuristic virtual-reality games would have you, the player, 
experience the "virtual" world inside a video game directly instead 
of vicariously. Perhaps wearing goggles, gloves, or body suits con- 
nected to the multimedia system, players would enter a fictional 
world and perceive it not as an outsider looking in but from within 
the game itself. They would not be controlling a tiny cartoon of 
Mario on a television screen; they would be Mario. They would 
look up, face a cherry-red Goomba the size of a VW Bug charging 
toward them through a surrealistic palm-tree forest, and they 
would have to react— quickly. 

For all their uncertain futuristic promise, the multimedia- and 



37Q GAME OVER 



interactive-entertainment businesses were coming; that much was 
unarguable. It was also generally accepted that multimedia was 
going to swallow up large segments of some of the world's largest 
industries, including much of the consumer-electronics and enter- 
tainment industries, as well as segments of the computer business. 
Analysts predicted that the multimedia business could eclipse that 
for the VCR by as early as the turn of the century. Estimates of the 
size of the industry varied widely. Some experts predicted that 
more than $3 trillion a year would be spent on multimedia by the 
year 2000. The largest multimedia corporations would own com- 
manding shares of that stake. Needless to say, Nintendo wanted as 
much of it as possible. 

If Nintendo could repeat the success of its 8-bit system with the 
16-bit machine, it would be in an ideal position to emerge as a 
strong player in multimedia. At last it would have the opportunity 
to follow through on what Hiroshi Yamauchi had envisioned years 
before. His video-game system would transform into a multiuse, 
multipurpose home computer, the first truly pervasive home com- 
puter for the mass consumer market. While there were more than 
50 or 60 million Nintendo home game systems in the world, the 
potential number of multimedia systems was larger still. How 
many? Trip Hawkins estimates that there are 300 million television 
sets in the world. At the extreme, there could be several hundred 
million Nintendo machines in homes throughout the world, all 
running Nintendo-made or -controlled software. Nintendo would 
emerge as a formidable global corporation. 

Although companies such as Apple, IBM, Sony, Matsushita, 
Philips, Fujitsu, and Microsoft were scheming how to get shares of 
this market, Hiroshi Yamauchi had daringly announced early on 
that Nintendo would "define" the home-entertainment-systems in- 
dustry of the future. The move, he said, was the company's 
"boldest departure yet from the antiquated perception of video- 
game technology." Howard Lincoln says, "Once the momentum 
begins, it becomes a self-fulfilling prophecy." A large customer 
base would attract licensees, who in turn would produce a wide 
variety of software. If the software was good enough and broad 



SONIC BOOM 371 



enough, the customer base would grow, bringing on more licen- 
sees, more customers, more licensees, more customers . . . 

Other video-game companies, including Sega, were going to try 
to get a stake too, although they were unlikely candidates for the 
biggest leagues; Sega, primarily a software company, seemed too 
narrow-minded and lacked the resources to promulgate a standard 
on its own. Instead the competition would be among computer and 
consumer-electronics companies, or among newly formed joint 
ventures between them and entertainment companies. Hiroshi 
Yamauchi's appetite was large enough to imagine it. As The New 
York Times reported in early 1992, "Nintendo, sometimes underes- 
timated, is not about to concede anything to larger electronics 
companies." Peter Main said, "We continue to be very aware of the 
Sonys, the Apples, and the Microsofts. We are not taking our past 
success for granted." Hiroshi Imanishi said, "The Super Family 
Computer will be the fastest-selling and, ultimately, the most 
widely spread computer of all." 

To get there, Arakawa and Yamauchi kicked the pace into over- 
drive by mid 1992 (though their failure to blow Sega away with the 
SNES was a sobering cold shower). On one front, the Super system 
push was revved up. On another there was a heightened drive to 
do what Nintendo had done better than anyone in the past— create 
games that would keep its fans, and new generations of fans, in- 
trigued. To that end, Yamauchi increased the research budget to 
explore the future of video games and multimedia. He also entered 
into secret alliances with technology companies and negotiated 
with entertainment companies for licenses to their characters and 
stories. 

As has often been the case with mass-market consumer technol- 
ogy, multimedia was first developed by techies/or techies to use on 
computers. A vision of multimedia on computers was outlined by 
Microsoft, a forerunner in the field, in May 1991: "A multimedia- 
equipped personal computer is still a personal computer. It can do 
the same things today's traditional personal computers can do. But 
because it adds the possibilities of sound, animation, and high- 
quality graphics, it provides richer building blocks for new, more 



372 GAME OVER 



compelling, more engaging ways to use computers." Microsoft esti- 
mated that more than 15 million of the personal computers on the 
market in 1991 were "multimedia-upgrade ready." To help get 
them there, it updated its popular Windows 3.0 program to accept 
extensions with the capability of driving multimedia. The 
Microsoft multimedia team, sporting sweatshirts that read, i would 

TELL YOU WHAT I WAS WORKING ON, BUT THEN I WOULD HAVE TO KILL 

you, planned to be at the center of the industry, whichever way it 
went. 

In general, the key addition to a computer for multimedia is a 
compact disc player that plays CD-ROMs as opposed to tradi- 
tional CDs. The difference is that CD-ROM discs can do more 
than play great-sounding music. There are different formats of 
CD-ROM discs, but they all have in common the ability to carry 
music, moving and still pictures, voices, and computer programs as 
well as the text and simple graphics normally associated with com- 
puters. Almost anything that can be digitized, encoded, and incor- 
porated as data on a platter can be fodder for multimedia. 

Sophisticated games are one selling point for CD-ROMs, but 
the most compelling application of the first CD-ROM player 
hooked to a computer was immediate access to enormous amounts 
of information. For $700, Sony's Laser Library could be attached 
to a personal computer and play normal CDs as well as CD- 
ROMs, a sampler of which was included. On one disc was the 
entire Compton's Family Encyclopedia, with text and pictures. On 
the National Geographic Mammals disc was a reference book of 
information about animals plus recordings of animal sounds and 
video clips of animals in the wild. 

Sony had pioneered CD and CD-ROM hardware technology 
and planned on leading in software, founding Sony Electronic Pub- 
lishing specifically to develop and license CD-ROM software for 
multimedia. In addition to releasing the CDs that accompanied its 
Laser Library, Sony Electronic Publishing planned to make games 
and other entertainment and reference software on CD-ROM that 
would play on many systems. 

Hardware companies that are adapting computers for mul- 
timedia include Apple, IBM, Fujitsu, and Tandy. There are soft- 
ware companies as well. Microsoft's chairman, Bill Gates, has 



SONIC BOOM 373 



founded a side venture called IHS to create multimedia software. 
Gates exploded the boundaries of the pre-multimedia definition of 
software and has attempted, for instance, to corner the market on 
the rights to digitize museums full of paintings. With those rights, 
Gates could offer, say, a CD-ROM tour of the Musee d'Orsay in 
Paris. A "visitor" could peruse the paintings in any order, at any 
pace, zooming in to study details, and calling up audiovisual biog- 
raphies of the painters. The discs could contain audio commentary 
from critics and historians, and users could, perhaps, even "sam- 
ple" paintings. Presumably one could place Whistler's mother's 
head on the body of the nude in Dejeuner sur Vherbe, decorating 
the picnic with bunches of Van Gogh's lilies. 

Although the first multimedia systems have been centered 
around the computer, Commodore, Apple, and a steady stream of 
new entrants into the multimedia business have seen that more 
people would use systems for entertainment, education, and infor- 
mation if they were easier to use and had the trappings of a con- 
sumer product, not a computer. The personal-computer revolution 
has already proved that most people will continue to spend their 
leisure time around their televisions rather than around computer 
screens. It is a safe bet that multimedia will find its place in the 
living room rather than the office; multimedia machines will ulti- 
mately replace and supplement normal television, cable, VCRs, 
and the like. Computer companies will likely be left in the dust of 
the proliferation of multimedia that play on television sets unless 
they figure out ways to participate. 

Apple, which has a growing R&D budget for multimedia, will 
probably launch a CD-ROM-playing machine— a unit containing 
a Macintosh computer processor and operating system that will, 
presumably, hook up to televisions, much like a VCR. Apple, how- 
ever, has the disadvantage of not understanding the under-$500 
consumer market. An earlier plan to develop a video-game system 
was reportedly abandoned. "They realized how important the soft- 
ware business was," Arakawa says. "Who is going to make it for 
them?" 

Nonetheless, as it became clear that the consumer business is 
where the industry is going, Apple has set a course. To beat the 
drum for the company's first entry into the consumer business, 



GAME OVER 



Apple chairman John Sculley showed up at the Consumer Elec- 
tronics Show in January 1992. In a speech he observed that "the 
personal-computer industry and traditional consumer-electronics 
industry are converging on an inevitable and potentially wonderful 
collision course." Although he made no specific product an- 
nouncement, Sculley indicated that an Apple multimedia machine 
was going to be at the vortex of the collision. 

Commodore, makers of the Amiga computer, is already there. 
CDTV was released by Commodore in 1991, and Nolan Bushnell 
was hired to push it. He said that he had agreed because CDTV 
provided the kind of potential that his brainchild, the video game, 
never delivered: technology that would help dissolve the distinc- 
tions between art, entertainment, education, and productivity. 

A comedown from the flashy corporate offices of his past— 
whether at Atari, Chuck E. Cheese Pizza Time Theater, or Catalyst 
during the glory days— in early 1991 Nolan Bushnell's office was in 
a dirty-beige, brown-trimmed complex on a side street not far from 
Hewlett Packard in Mountain View, California. His lobby could 
have been an insurance company's except for the fact that Bush- 
nell's first commercial video game, "Pong," was set up along one 
wall. It was a classic, a black-and-white MGA television in a cabi- 
net of fake wood veneer. Inside was a six-by-eighteen-inch circuit 
board and a coin box, on the front were two simple controllers and 
a yellow panel, and that was it. 

In a purple, black-dotted shirt and gray tie, Bushnell sat behind 
a cluttered desk in his office. He leaned forward, resting his weight 
on his large fists. Near him was a Macintosh lis computer with a 
large-format monitor. Piled on the desk and shelves were an Audu- 
bon Society book on whales, a stuffed Cupid Mouse from Chuck E. 
Cheese, a toy robot named Spybot, a Playskool Baby Monitor, 
"Scrabble Lexor," a Cherry Coke, and more books: Android De- 
sign, World of Robots, Making Robots, Introduction to Artificial Intel- 
ligence, and Iaccoca. There were also handsomely bound volumes 
commemorating Chuck E. Cheese Pizza Time Theater stock offer- 
ings— 1,169,610 worthless shares. 

From this office, years after Atari crashed, Catalyst folded, and 
Pizza Time went bankrupt, Bushnell ran numerous small compa- 
nies. Vent made computer peripherals and software; Buffalo made 



SONIC BOOM 375 



laser-printer cartridges; Names and Faces made a coin-operated 
photo booth— like the ones in airports and arcades but employing 
no photographic chemicals; instead, the photographs, taken by a 
video camera, were digital pictures, spit out instantly from a laser 
printer. 

In spite of his other projects, Bushnell had accepted a job as a 
consultant for Commodore in 1990. He said he was devoting "by 
far the biggest chunk" of his time to Commodore, "beating the 
drum and evangelizing for multimedia." 

Commodore released CDTV in early 1991. The multimedia ma- 
chine was actually an Amiga computer hidden inside the sleek box 
of a consumer-electronics product (much as the Apple multimedia 
player would probably be a Macintosh in a cabinet designed for 
living rooms instead of offices). Commodore's primary advantage 
was the Amiga; it had a readymade software library, and there was 
a software-development community that appreciated the machine. 

The Amiga processor was attached to a built-in CD-ROM drive 
and controlled by a fancy remote controller, although a keyboard, 
mouse, and floppy-disk drive could be added. On its own, CDTV 
sold for $799. A couple of hundred dollars' worth of add-ons would 
transform a television set into a full-blown computer, although that 
was not what would drive CDTV. Instead, it would be CD-ROM 
entertainment and information programs, such as a multimedia 
atlas (with audio samples of languages, reference books of statis- 
tics, and picture slide shows, in addition to the expected maps), a 
multimedia version of Grolier's Encyclopedia, and multimedia chil- 
dren's books, such as the "All Dogs Go to Heaven Talking Electric 
Crayon" coloring book. 

CDTV and the prospects of multimedia were revelations for 
Bushnell, who had founded the first wave of the video-game busi- 
ness with the belief that it would lead to new ways of learning. He 
said he had felt disappointed with his progeny— "not quite the 
guilt that Robert Oppenheimer felt, but guilt nonetheless. . . . 
Video games have not fulfilled the promise that I envisioned," he 
said. "The repetitive, mindless violence that you see on video 
games right now is not anything I want to be associated with. I 
don't know how to put it more kindly. I think it's shit." But CDTV, 
he added, "will finally interweave education and fun." 



37B GAME OVER 



In spite of Bushnell's lofty vision and a major advertising cam- 
paign by Commodore, it was by no means certain that CDTV 
would be a player in multimedia. It had a head start on Apple and 
other contenders, but Commodore had a history of missing the 
boat when it came to large-scale marketing to consumers. 

The Dutch electronics giant Philips N.V., the largest consumer- 
electronics conglomerate in Europe, had a better track record with 
consumer products, and it had backed its multimedia platform, the 
Compact Disc Interactive (or CD-I), with a huge amount of devel- 
opment money and a long-range view of the market. Philips re- 
leased CD-I years behind schedule, in October 1991, months after 
CDTV, because of technical problems. The $1,000 "imagination 
machine" (the price later went down to $799) was designed strictly 
for multimedia, so there were no keyboards or floppy-disk-drive 
add-ons. 

Owing to Philips's stature in the marketplace, it was supported 
by more software companies than CDTV. Released under its 
Magnavox label, the CD-I could boast a library of impressive pro- 
grams. One was a better version of a multimedia children's story- 
book than the one released for CDTV. When kids popped in a disc 
licensed by the software division of Sesame Street, Bert and Ernie 
appeared on the television screen. Perfect hosts, they invited kids 
to explore their apartment, a treasure trove of fun. Learning was 
the subtext, of course; a child could read books along with Ernie 
and do fun math problems with Grover. 

The library of CD-I was diverse, from "Caesars World of Gam- 
bling" to "ABC Sports Golf: Palm Springs Open" to "Treasures of 
the Smithsonian," a self-guided tour of 150 of the institution's 
attractions. A novel educational disc developed by Time-Life 
(called "Time-Life Photography") contained condensed versions 
of ten popular how-to photography books. In one lesson, a rower 
piloted a scull through the water and the "viewer" had to snap a 
photograph that preserved the background detail but conveyed 
motion. 

In spite of the early software and the promise of great things to 
come, CD-I and CDTV posted unimpressive sales. The systems 
were too expensive and the market was too new. Still, Philips 
noted, in its first year CD-I sold more than either the VCR or CD 



SONIC BOOM 377 



player had in their first years. The executives at Sierra On-Line, 
which produced a CD-ROM game called "Mixed-Up Mother 
Goose," were happy to have sold 6,000 discs, a number that would 
have been considered an embarrassment in the video-game busi- 
ness. 

The companies knew it would take time for consumers to appre- 
ciate multimedia, let alone invest in it. After televisions were intro- 
duced in the United States, it took a full decade before 1 million 
were sold. EA's THp Hawkins summed up the problem: "If you're 
going to bring out a hardware system and it's going to cost $800 
and the main reason why somebody's supposed to buy it is for 
interactive applications, which is something they really don't un- 
derstand right now— I mean, that's just not going to work." 

What might work, however, was a lower-cost machine with a 
popular application: games. "CD-ROM's popularity will increase 
dramatically when Nintendo rolls out a CD-ROM-based game 
machine," the influential computer-industry columnist John C. 
Dvorak wrote in September 1991. The thinking was simple: Nin- 
tendo had in its clutches a huge number of savvy consumers, 
unafraid of technology, who could be expected to do whatever it 
took to get their hands on the hottest new games. Kids clamoring 
for a new super-powered Nintendo CD game would do more for 
multimedia system sales than the most impressive multimedia en- 
cyclopedia. 

Nintendo's entry would also, Dvorak imagined, bring down the 
prices of CD-ROM technology, essential for it to catch on. "Why 
couldn't manufacturing giants like Toshiba, Hitachi and Sony ex- 
cite the market enough to drive down prices for drives?" he asked. 
"Even they seem to think that Nintendo can effortlessly (and over- 
night) accomplish what they failed to do. If that's the case, why 
doesn't someone just hire the Nintendo marketing genius." 

In a sense, two of the big companies tried. Philips N.V. con- 
tacted Nintendo and entered into two-pronged negotiations. First, 
Nintendo was planning a CD-ROM drive that would hook on to 
the Super NES and Famicom; Philips wanted to help create this 
system. Second, and more significant, Philips wanted future Nin- 
tendo games to be playable on CD-I. 
An agreement was painstakingly hammered out between Philips 



378 GAME OVER 



executive Gaston Bastiaens, who headed the CD-I group, and Mi- 
noru Arakawa and Howard Lincoln. To finalize the deal, Lincoln 
and Arakawa headed for the Netherlands in May 1991 to meet 
Bastiaens at the Philips world headquarters in Eindhoven. The two 
companies agreed on a deal that allowed Philips to create a bridge 
so that Nintendo CDs could play on CD-I. Significantly, Nintendo 
would control the licensing rights to the compact-disc games in 
much the same way it controlled NES and Super NES licensing. 
For its part, Philips won a valuable affiliation with Nintendo that 
would help sell CD-Is. Philips also could win a lucrative contract 
with Nintendo to supply the CD-ROM drive that would be at- 
tached to the Super NES. 

Arakawa and Lincoln then headed to Chicago for the June Con- 
sumer Electronics Show, where they planned to announce the 
deal. But sparks were about to fly; the deal Nintendo had entered 
into with Philips conflicted with another one it had made with 
Philips's competitor, Sony. 

The two giants, Philips and Sony, competed in many consumer 
markets, including television sets, radios, videocassette recorders, 
cameras, and CD players. They had once been allies in the devel- 
opment of CD-I until reported personality conflicts and clashing 
visions caused an unfriendly parting of the ways. Philips released 
CD-I on its own, while Sony released its CD-ROM system for 
computers and planned to release a cheaper alternative to CD-I, a 
game machine called the Play Station. 

When the Play Station was announced in summer 1991, it 
caused headlines. Acknowledging that the video-game business 
had grown too large to ignore any longer, Sony was entering the 
fray in partnership with the dominant force in the industry, Nin- 
tendo. Sony also had awakened to the fact that it could use a 
relationship with Nintendo to explore the CD-ROM business. The 
Sony Play Station seemed to be an ideal vehicle that would usher 
in the era of CDs since it played CD-ROMs, called Super Discs, as 
well as Super NES cartridges. It was an extraordinary alliance; two 
Japanese companies, giants in their respective industries, were 
joining forces. 

But this was before Nintendo's executives realized the implica- 



SONIC BOOM 379 

tions of the deal they had signed with Sony back in 1988. By 1991 it 
was seen as a disaster, one that contradicted Nintendo's cardinal 
tenet of giving nothing away. Nintendo, which had predicated its 
business on complete control of its game software, had granted 
Sony the right to control (and profit from) all CD-based software 
that played on the Play Station. When it had announced the Play 
Station, Sony emphasized that it was the "sole worldwide licenser 
of the Super Disc format," and Nintendo was left to twist in the 
wind. 

Perhaps Yamauchi had been intimidated by Sony back in 1988, 
when the deal was signed, or perhaps he had underestimated the 
importance of CDs. But the situation was intolerable, regardless of 
his signature on the contract. 

Sony announced the Play Station at the June 1991 CES in Chi- 
cago. The Play Station would have a port identical to the one on 
the Super Nintendo, as well as a CD-ROM drive that would play 
Sony Super Discs, CDs that contained up to 680 megabytes of 
data. The machine would play high-quality video games and even- 
tually other forms of interactive entertainment. Olaf Olafsson, the 
chief of Sony Electronic Publishing, who was in charge of the Play 
Station, explained, "In order to promote the Super Disc format, 
Sony intends to broadly license it to the software industry." Olafs- 
son, youthful, blond, and dapper, added, "We will draw on the 
creative and entertainment resources of the Sony family of compa- 
nies, including Sony Music and Columbia Pictures, to develop and 
market an exciting lineup of software products." 

Sony was going directly after Nintendo's customers. In Fortune, 
Olafsson was quoted as saying, "Primitive cartridge-based games 
brought in $4 billion to $5 billion in the U.S. alone last year. The 
video-game business won't get any smaller. It will get more sophis- 
ticated. With film and music, the games will be much more inter- 
esting. ... By owning a studio, we can get involved right from 
the beginning, during the writing of the movie. We can get footage 
as it's being filmed. We can say, 'Can you film the backstage in a 
certain way, because we need it for a video game?' " Fortune re- 
ported that Olafsson was seen on the set of Hook, the Robin 
Williams and Dustin Hoffman movie, several times before the 



GAME OVER 



filming was completed. He was deciding what backgrounds to use 
in a "Hook" video game, which parts of the soundtrack to include, 
and how best to time the game's release. 

Sony was in a position to cripple Nintendo, and this deal set the 
stage for it to use Nintendo to win customers, steal licensees, and 
then discard the company. But there was more. Sony was the sole 
supplier to Nintendo of a key chip — the audio chip — inside the 
Super NES. It had been designed by Sony so that its full capabili- 
ties could be taken advantage of only by programmers working on 
an expensive development tool created by Sony. As one industry 
consultant put it, "Sony had Nintendo by the balls. ... It was not 
a tenable position as far as Hiroshi Yamauchi was concerned. Be- 
cause of that, he instructed Arakawa to proceed with the Philips 
deal. It was meant to do two things at once: give Nintendo back its 
stranglehold on software and gracefully fuck Sony." The New York 
Times restated it more genteelly: "The move was widely seen as an 
attempt by Nintendo to enter the compact-disc market on more 
favorable terms." 

Publicly Nintendo explained it had allied itself with Philips, 
makers of the original CD, because its CD-ROM technology was 
superior. Privately it was known that Yamauchi had allied himself 
with Philips because he had decided that Nintendo would not be- 
come dependent on any other company. No one, not even Sony, 
intimidated him. 

Nintendo conspired with Philips to pull the rug out from under 
Sony, in front of the press and public, at the CES the day after the 
Play Station was announced. There was no doubt that the move 
was designed to embarrass Sony and make it clear to any doubters 
that Nintendo was fearless. 

The Sony executives in Japan had learned about the pending 
press conference forty-eight hours earlier, and were, according to 
all reports, stunned. The company's chief executive, Norio Ohga, 
attempted to stop the deal by placing calls directly to Hiroshi 
Yamauchi at NCL and Jann Timmer, the new chairman of Philips, 
in Amsterdam. Bastiaens also heard from Sony brass. Nintendo 
and Philips presented a united front. They said a deal had been 
concluded and there was nothing to discuss. Though faced with the 
threat of lawsuits and "other repercussions," Nintendo insisted 



SONIC BOOM 3S1 



that the Philips deal did not interfere with the arrangement with 
Sony, and the protests fell on deaf ears. 

Top Sony officials continued to attempt to head off the an- 
nouncement. Howard Lincoln says, "There were tremendous ef- 
forts on a worldwide basis to keep that press conference from 
happening. They gave up on us, but they kept pressuring Philips." 
Timmer and Bastiaens fielded numerous calls. In the meanwhile, 
Sony's New York team considered canceling the announcement of 
the Play Station, but things had gone too far; also, it would have 
played right into Nintendo's hands. 

The press conference began at 9:00 a.m. sharp. It was heavily 
attended by a huge gathering of press from the trades and major 
newspapers. It was expected that Nintendo planned to boost the 
Super NES and remark on the company's significant alliance with 
Sony. Instead, Howard Lincoln, at ease at the podium, announced 
Nintendo's plan to work with Philips. The buzz in the room was 
audible, but it was nothing compared to the frenzy at Sony. Olaf 
Olafsson was livid. "They stabbed us in the back," the young pow- 
erhouse from Iceland told a confidant. In statements to the press, 
he insisted that Sony had an exclusive deal with Nintendo that was 
being violated. 

The Shockwaves were felt throughout Japan, where the industry 
speculated about the implications of Hiroshi Yamauchi's stand, 
and the price Nintendo would pay for humiliating Sony. Also at 
issue was Nintendo's breach of the unwritten law of turning against 
a reigning Japanese company in favor of a foreign competitor. The 
repercussions could be severe. 

In Japan there were meetings at both companies' corporate 
headquarters. In the United States lawsuits would probably have 
been filed under the same circumstances, but Japanese companies 
work differently. Nintendo had taken a strong public stand against 
Sony and Sony had to react. It had to be careful, however; it had a 
lot at stake. Nintendo was going to be instrumental in selling the 
Play Station because of the port for playing Super NES games, so 
Sony had an incentive to resolve the problem rather than exacer- 
bate it. 

Nintendo, meanwhile, could benefit from the relationship, too, 
if it could win better terms, primarily the control of CD games it 



GAME OVER 



made or licensed. Nintendo was tied to Sony because of the audio 
chip, and it was sure to suffer in one way or another if it alienated 
Sony. 

While a contract between American companies is typically doz- 
ens of pages long, a contract between Japanese companies might 
be merely two or three pages, written, to Western eyes, with con- 
siderable ambiguity. These nebulous agreements are designed to 
allow room for continued negotiation over the life of the contract. 
Often a good-faith clause is included, indicating the parties' agree- 
ment to sit down and discuss problems as they arise. 

Since the contract was vague on certain points — at least accord- 
ing to Howard Lincoln — NCL danced through the loopholes to 
extricate itself from the bad deal. Nintendo's Hiroshi Imanishi, one 
of the negotiators, would only say, "I did not make this decision. 
Mr. Yamauchi made this decision. I can't tell you all the reasons 
behind it. We made a business decision that we are not going to 
support Sony, although we will honor the contract we have with 
them. However, we decided that we would enter into this relation- 
ship with Philips, and it will prove to have been the correct deci- 
sion." 

In the weeks following the blow-up, Nintendo and Sony commu- 
nicated with each other through the press. Although Olafsson criti- 
cized Nintendo in The Wall Street Journal he also said, "The door 
is still open." "The goal now is for both companies to find a way to 
save face," an analyst surmised. "In some ways it appeared that 
Nintendo used Philips to either revise the Sony deal or to retaliate 
against Sony. It's not over, though." 

Minoru Arakawa kept silent about the affair, citing a nondisclo- 
sure agreement in the contract. However, Hiroshi Imanishi said, 
"The only acceptable deal would allow Nintendo to make its own 
software with the same software control as with game cartridges." 
In the aftermath of the CES announcements, Howard Lincoln 
said, "It's safe to say that if we release 'Super Mario 6' on compact 
disc, it would not play on Sony's CD player unless Nintendo and 
Sony resolve their differences." Yet, he went on, "anything is con- 
ceivable." One thing, of course, was not conceivable: Lincoln in- 
sisted that there could be no deal that had Nintendo making games 



SONIC BOOM 3B3 

compatible with Sony's CD player exclusively or with Sony owning 
the rights to Nintendo's games. 

In spite of all the CD machines that hooked on to computers 
and the expensive CD-ROM players that hooked on to televisions, 
the multimedia explosion would probably not begin until a com- 
pany like Nintendo entered the business. Trip Hawkins, in 1989, 
said, "The VHS became successful not by being the best technol- 
ogy in the world, any more than a Nintendo machine is better than 
a personal computer. It was the cheapest technology that did the 
job. Multimedia would proliferate like the VHS business if there 
was a $100 video-game system that could be sold as an upgraded 
system to the 35 million households in America that are video- 
game literate. Of those 35 million households, at least several 
million are going to be interested in a product like that if it is 
released with good software. That is the way of getting the market 
going without having to beat people over the head to educate them 
about something completely new. They already understand interac- 
tive entertainment and it's in their price range." The product was 
the Super NES, Genesis or something similar. 

"Then," Hawkins continued, "release a $200 consumer-grade 
CD-ROM player with a digital controller and some RAM that 
would also play audio CDs. If the price were low enough, a lot of 
consumers would buy it instead of a regular CD, figuring they 
would get the extra capability to play games for a little more 
money. The total becomes $300, which is an order of magnitude 
less than what the current PC companies are trying to sell mul- 
timedia for." 

In June 1992, Nintendo announced that it would release a CD- 
ROM drive that would attach to the Super NES in 1993. Its press 
conference at the summer CES heralding this made it clear that 
Nintendo would be entering into the CD business and would come 
up with a licensing program very similar to the NES and Super 
NES arrangements. "We will exercise quality control over the CD 
games," Howard Lincoln said. "There will be a security system in 
the CD player, just like in the Super NES." In a press release, 
Nintendo announced that "[CD] licensees will need to submit their 
games to Nintendo for evaluation and approval and enter into 



3B4 GAME OVER 



license agreements with Nintendo." Some of the old controversies 
were set to rear their heads once more. "We'll definitely have the 
security system, and it is conceivable that we could have an exclu- 
sivity clause in the CD agreement," Howard Lincoln said. "See, I 
don't think there's anything wrong with Nintendo's exclusivity 
clause, and no court has yet determined that there is." 

Nintendo worked to finalize a format for its CD player and to 
devise a security system. The machine had to be better and 
cheaper than competitors' offerings, of which there were many, 
almost all of them incompatible. NEC had arrived too soon with 
too little. Its hardware technology wasn't good enough, the CD 
player hurt the performance of the game system, and the player 
wasn't a true CD-ROM machine that could play real-time graphics 
and high-resolution video. 

Once again, Nintendo's immediate and strongest competition 
seemed to be Sega. Its CD player was available by the end of 1992 
for about $300. The initial price tag would keep most consumers 
away, but once again it was beating Nintendo to the punch. Sega 
made the additional announcement of a deal with Sony, which 
planned to create games for the Sega Multimedia Entertainment 
System based on its entertainment companies — the Columbia and 
TriStar studios and Sony (CBS) Records. Tom Kalinske, president 
and CEO of Sega of America, said, "We will be tying in with Sony 
artists. I just talked to [Columbia Pictures president] Peter Guber, 
and we talked about shooting footage for games at the same time 
as they're filming." The first example was footage being shot on 
the set of Steven Spielberg's Jurassic Park, based on the Michael 
Crichton book. "People talk about multimedia a lot in the per- 
sonal-computer industry, but we're doing it," Kalinske told the Los 
Angeles Times. "The days of the dictatorship are over." 

Although Sega and Sony would benefit most from the deal, the 
announcement also served as a slap at Nintendo by Sony. As one 
reporter put it, "Sony said, 'Okay, Nintendo, you chose to ignore 
our deal and team up with Philips, so we'll aid and abet your 
biggest competitor.' " 

There were other CD players coming out that played both CDs 
and cartridges, including Sony's Play Station and ones planned by 



SONIC BOOM 385 

NEC (combining the TbrboGrafx and a CD drive) and JVC (which 
played Sega CD games). There were also stand-alone machines by 
Commodore, Philips, and probably Apple. All these companies 
were vying for a share of the high-stakes industry. Most entries 
would not survive, and there were rumors that CDTV might be the 
first victim. 

THp Hawkins decided that too much was at stake to sit on the 
sidelines. Back in 1989 he had predicted that there would be an 
everyone-for-himself attitude by the hardware companies, with 
dire consequences. "It will set the industry back a decade," he said. 
"Technology will be sacrificed and consumers will stay away." If a 
single standard were developed, he imagined tremendous leaps 
forward for multimedia; then software developers could focus 
their energies on what they do best by taking the technology and 
running with it to create unimaginable multimedia packages. 

Since it seemed that the machine Hawkins envisioned wasn't 
likely to come from any one company, he was asked if he would 
attempt to create it. He answered, "We certainly will try to influ- 
ence hardware companies to make it, but we're not a hardware 
company." 

A year later a piece came out in The New York Times in which it 
seemed that Hawkins's attitude had shifted. He characterized the 
existing multimedia hardware as "low on performance and high on 
price," and complained that Sony and Philips were alienating con- 
sumers and forcing software companies to guess which format to 
jump on. As a result, the Times reported, "Mr. Hawkins is no 
longer just talking." 

Hawkins had turned the day-to-day management of Electronic 
Arts over to president Larry Probst so he could concentrate on a 
new venture that was likely to focus on the issue of hardware 
design and compatibility. Although his new company, 3DO, was 
shrouded in secrecy, he told an interviewer, "It concerns me," he 
said, "that when I look at the hardware companies, there are the 
PC companies, who are clearly not going to do the right thing as 
far as I am concerned, and consumer-electronic companies, who 
don't know what to do. Then there are the Japanese video-game 
companies, who are too shortsighted to see where this is going. 
Obviously we would like to see a standardized system that a lot of 



GAME OVER 



hardware companies are supporting. I am trying to figure out if it 
makes sense to get a group together to create the next-generation 
system. We would then go around and attempt to license it to 
hardware companies." 

Hawkins reportedly allied with Time Warner, Motorola, Lu- 
casArts, and Matsushita and its MCA subsidiary, in an attempt to 
come up with a powerful 32-bit CD-based game system that would 
also run multimedia encyclopedias with animation and interactive 
movies. The machine would probably connect to telephone and 
cable lines, which would pave the way for "pay-per-play" games. A 
Time Warner network might bring a video store's worth of movies 
into the home that could be selected at any time via the 3DO 
machine. It could potentially steal the VCR and video-rental busi- 
nesses. Hawkins reportedly planned a 1993 shipping date and a 
$700 price tag. If he succeeded in creating the technology, he'd be 
going up against a formidable list of competitors, including Nin- 
tendo. 

The preponderance of CD systems, with varying formats and no 
(or almost no) compatibility, threw the software community into a 
tizzy. The surfeit of warring companies baffled them; whom should 
they support? "I wish one of those guys would win, I don't care 
which," said Richard O'Keefe, now with Warner New Media. It 
was a sentiment shared by many. 

Executives of several of the largest Nintendo licensees traveled 
to Kyoto to attempt to convince Hiroshi Yamauchi to reconsider 
his decision to oppose Sony. A Sony-Nintendo-Philips coalition 
might instantly create an industry-wide standard. They pleaded 
with Yamauchi to see the wisdom of promulgating a single stan- 
dard that would be open, with complete access to all software 
companies, and further the industry. Consumers would jump in 
with excitement instead of waiting through the early elimination 
rounds. But "Mr. Yamauchi had already made up his mind," Henk 
Rogers says. 

Yamauchi summed up his attitude in a meeting with another 
company president. "Nintendo believes in a standard," he said. 
"Our standard." The problem, Acclaim's Greg Fischbach says, is 



SONIC BOOM 3B7 



that "there's nothing we can do until it's sorted out. We'll sit in the 
cheering section and watch what happens." 

Nintendo's negotiations with Sony continued through 1992. Be- 
cause of the Philips deal, Nintendo succeeded in reopening negoti- 
ations over the right to control CD software that played on Sony's 
machine. An agreement was reached in October 1992. A source 
inside Sony says, "We concluded that we had to ally ourselves with 
Nintendo when we saw that it was going to be the 16-bit winner. 
We wanted access to all those Nintendo players." 

After all the threats and announcements of deals with each 
other's competitors, Nintendo and Sony had worked out their 
differences, and their CD-ROM players would be compatible. 
(Philips still had the right to create a bridge from its CD-I system 
to Nintendo's format, but it was on the sidelines of the deal.) 
Nintendo's and Sony's machines would be more powerful than any 
other CD-ROM-based systems in the consumer market — like the 
rumored 3DO machine, built around a 32-bit processor. With that 
and the companies' marketing strength, Nintendo and Sony could 
very well be the ones to create a standard — a standard that they 
will control. A Nintendo-Sony standard could be almost unbeat- 
able, and the companies could share a guaranteed position at the 
center of the multimedia industry. 

The deal put Nintendo in the dominant position in the most 
lucrative arena: software licensing. Nintendo won the right to de- 
cide whether any software to be released on the CD-ROM systems 
is a game or not. If it is, even if it is one of Sony's own games, 
Nintendo will license it. If it is a non-game, anything from a mul- 
timedia reference "book" to a CD-based tax seminar, Sony has the 
right to license it but only through Nintendo. The upshot is that 
Nintendo receives royalties on all the software that will play on the 
Nintendo and Sony CD-ROM machines. Hiroshi Yamauchi had 
successfully stood up to Sony, and emerged with as much control 
as ever. 

Software for some first-generation CD-ROM machines that 
worked with computers showed glimpses of why the disc would 
take over. For a game called "Sherlock Holmes, Consulting Detec- 



3BB GAME OVER 

tive," the ICOM Company filmed actors in the roles of Holmes 
and Dr. Watson as well as various Scotland Yard commissioners, 
witnesses, and suspects. This footage was digitized and included in 
the game. It was far more realistic than the animations in most 
video games. Syracuse Language Systems released "Introductory 
Games" in Spanish and French (Russian, Hebrew, English, Chi- 
nese, and Japanese were planned). A Syracuse University team 
consisting of an educator, a computer engineer, and a linguist 
researched how to use multimedia games to teach foreign lan- 
guages to children. A reviewer of the Spanish game said it was "as 
thoughtful and imaginative a way to introduce English-speaking 
children to Spanish as any I've seen short of dropping them into a 
preschool with native Spanish speakers." 

Still, in spite of the games by ICOM, Syracuse Language Sys- 
tems, and a few others, most early CD games delivered nothing 
more than cartridge-quality games. Some had remarkably good 
sound and visuals — game music and sound effects, when piped 
through good speakers, added drama and realism — but the game 
play wasn't any better than a Nintendo game. What would ulti- 
mately lead to a rush for multimedia systems would be a quantum 
leap in game design. With revolutionary kinds of games, kids, and 
then a wider group of game players, would buy CD-ROM drives. If 
"Super Mario Bros. 5" or "The Legend of Zelda 4" came out on 
CD, and if the games delivered on the promise of the new technol- 
ogy, Nintendo could reaffirm its position as the dominant game 
company, if not as a dominant entertainment-software company. 
However, the revolutionary new games could just as well come 
from a third-party software developer. In that case, the benefactor 
would be whatever hardware company or companies licensed it. 

Developers at all the software companies throughout the world 
had ideas about the possibilities of CD games. Essential to 
Yamauchi's strategy to remain the biggest game company, and 
therefore one of the biggest consumer-electronics companies, was 
Sigeru Miyamoto and his other designers. At the same time, of 
course, Yamauchi was investigating alliances with entertainment 
companies. He observed that software was what gave Nintendo its 
edge against the slew of larger, more established adversaries. "I 
don't see that most of the companies are capable of creating very 



SONIC BOOM 389 



good entertainment software," said Hiroshi Imanishi, echoing the 
chairman's view. "The company that can make great software is 
the one that has knowledge and experience in making games. That 
company is Nintendo." 

Yamauchi felt that nothing short of Nintendo's future was at 
stake. "We learned our lesson from Atari," he said. "We are able 
to understand very clearly why Atari failed. No toy company ever 
became a truly big and great company by remaining a toy com- 
pany. We have much more ambition than that. As the lines that 
limited video-game companies in the past disappear, Nintendo will 
play a larger role in the world." 



\ IE 

BDRDER5 \^ 



> 



Some of the multimedia capabilities of the future are based on the 
concept of computer networks. Multimedia systems would have a 
high-tech umbilical cord connecting them to mainframe com- 
puters, much as TV sets are already hooked up to cable. Early 
versions of information and entertainment networks were already 
available for computers, connected via modems to traditional tele- 
phone lines. Higher-quality phone lines of the future, called fiber- 
optic lines, will one day funnel in everything from tailor-made daily 
newspapers — you decide what's of interest to you — to a huge se- 
lection of games and movies. The user will make choices with a 
click of a remote control. 

Nintendo plans a network for the United States, part of the 
global Nintendo Network Hiroshi Yamauchi envisions. The net- 
work in Japan will ultimately be part of a worldwide network that 
will connect families with a Nintendo system (NES or Super NES) 



BORDERS 



everywhere. According to that plan, Nintendo will then take its 
place as a force in another field — communications. 

Nintendo's huge customer base is again the doorway in. "Given 
the size of the installed base," says David Leibowitz, at American 
Securities, "Nintendo is the most appealing platform for a net- 
work." NOA could take advantage of all the NES households and 
also sell access to those homes to all kinds of businesses. "Open a 
video game and you find a computer, optimized for fun with spe- 
cial chips for zippy graphics and rich sound," wrote John Schwartz 
in Newsweek's look at "The Next Revolution" of computer-based 
technology in April 1992. "That's a lot like the sort of machines 
that computer makers are hoping to make for the consumer-elec- 
tronics market. Computer companies such as Apple will be hard- 
pressed to beat video-game companies at their game, says Mike 
Saenz, founder of Reactor, a Chicago-based entertainment-soft- 
ware company. Tf they think they've got a technology that can 
compete against the entertainment machines, they've got it wrong.' 
. . . Nintendo [in Japan] has already tapped the computer power 
within the game box: consumers use the consoles to bank at home, 
trade stocks and even to bet on lotteries and horse races. . . ." 

The network is significant because it is the first time Nintendo 
demonstrated that it had plans to be more than a toy company. It is 
the first time Nintendo has actively stepped on the toes of com- 
puter companies since the NES co-opted the games market. 

Yamauchi's plan was unveiled in 1989. "The network shows how 
the Famicom has outgrown its single purpose as an amusement 
system," he said. "It is our important business target this year." A 
Japanese business magazine proclaimed, "The Famicom is the first 
mass home computer. Soon you will be fighting for time on the 
Famicom with your children." 

As with multimedia, it seems reasonable to conclude that a tech- 
nology that was supposed to have been popularized on computers 
will win widespread use because of Nintendo. Computer networks, 
like multimedia, could enter the popular consciousness on the 
coattails of Nintendo. "The Famicom and NES will be the com- 
puter system that will popularize networks," Yamauchi says, and 
Howard Phillips noted, "The NES is the one piece of electronic 
gear that's in darn near every household, or at least the largest 



392 GAME OVER 

number of households around. It's kind of what the PCs wanted to 
be but didn't get to be." Newsweek added, "For all its billions in 
sales, the computer revolution has reached only 15 percent of 
American homes by some estimates." Meanwhile, Nintendo sys- 
tems are in more than 33 percent. Arakawa said almost whimsi- 
cally, "It seemed that we might as well take advantage of our 
position in the homes of America." 

Powerful and easy-to-use networks, relying on a computer such 
as Nintendo's, will bring access to information, services, and other 
people worldwide into the family living room. The list of on-line 
services that would be available via the network is familiar: elec- 
tronic banking (including bill paying), stock and bond monitoring 
and purchasing, shopping, airline reservations, and much more. 
Those services would be followed by a complete line of services — 
limitless possibilities — that would be available when fiber optics 
are in place. 

When the Nintendo Network was initiated in Japan, it offered 
these basics and then some. Nintendo became embroiled in a bat- 
tle between securities companies that wanted to use the network 
(Nintendo allied itself with Nomura, while the other three major 
companies used a competing, noncompatible system). Banks 
signed up too, beginning with Sumitomo and Kyowa. The Japanese 
telephone company, NTT, started a Nintendo banking service, as 
did Daiichi Kangyo Bank, which marketed a specially designed 
Famicom-and-modem combination (designed with Nintendo) 
called Convenient Boy. Over three hundred banks signed up. 

There is a growing, eclectic list of other network services. By 
logging on to the Japanese postal system on the Nintendo Net- 
work, one can order stamps and peruse directories of postal codes 
and weight and price charts. Japan Airlines and JR Tokai, the 
railroad company, offer on-line schedules and reservations. With 
Mitsubishi leading, one can buy and sell precious metals. Bridge- 
stone offers the Famicom Fitness Center, and the Japan Racing 
Association provides at-home wagering on horse races. 

But all the early hype and promise of the network (and Nin- 
tendo's lofty projections for it) remained unfulfilled by the early 
1990s. A survey in Japan diagnosed that one of the biggest stum- 



BORDERS 393 



bling blocks was Nintendo's name. In spite of its size, it was still 
viewed as a toy company, and most adults cannot conceive of using 
a child's toy for business. In addition, as an article in a Japanese 
newspaper pointed out, kids refuse to relinquish the video-game 
controllers to their parents. 

In the United States computer networks tie together several 
million people. Prodigy, pushed by Sears and IBM, is the largest, 
with 1.3 million subscribers as of January 1992. Prodigy users shop, 
bank, call up movie reviews, exchange information about their jobs 
and hobbies, sell cars, make airline reservations, and play games. 
NOA's plan for America is to launch a network that will dwarf 
Prodigy and its competitors, including CompuServe and General 
Electric's Genie. 

It is a reasonable ambition. Hooked by the promise of access to 
the game players across town and across oceans, kids would be the 
pioneers, bringing modems into households. They would probably 
educate parents about the potentials of a network, but even if they 
didn't, the generation of kids who grew up with the Nintendo 
Network will one day be trading stocks and making airline reserva- 
tions for themselves. 

In a 1988 press conference, Minoru Arakawa said that a network 
in America had the potential to be far bigger than one in Japan. 
"Telephone communications play a bigger role in the United 
States than in Japan," he said. In addition, NOA doesn't have as 
much of a problem with Nintendo's image as a toy company. There 
is, in fact, a growing user base of adults in the United States who 
are at ease sitting on the floor in front of the TV screen, NES 
controllers in hand. 

Jerry Ruttenbur, a senior vice-president in charge of prere- 
corded videocassettes at Home Box Office, was hired by Arakawa 
to create the Nintendo Network in America. In 1989 Nintendo 
announced that it planned to have an entertainment and informa- 
tion network on the market the following year, and that ten million 
homes would be linked by 1991. 

Though Ruttenbur's background was in sales and marketing, he 
took over an R&D department. The reason was practical; before 
he could sell a network, it had to be invented. He was given little 



GAME OVER 



direction but a grand goal: to sell modems to the NES households 
in the United States and get them all hooked together for banking, 
stocks, shopping, and games. 

Ruttenbur made inroads. While a team of engineers from Japan 
(borrowing from the experience there) and researchers from 
America developed the hardware and software, Ruttenbur set out 
to determine what companies would be interested in utilizing a 
network that connected Nintendo households. Fidelity Invest- 
ments was the first to sign up; users could manage Fidelity portfo- 
lios from home. Peter Main announced that Dow Jones 
Professional Investors Report also had approached Nintendo. 
Banks were interested too. 

AT&T entered into negotiations to become the carrier. In a 
conference of three dozen people at AT&T's New Jersey head- 
quarters, all the presentations were given twice, in English and 
Japanese. (More than once the translator threw up his hands. 
"There are no Japanese words for these things," he said.) Still, 
before the meeting was over, AT&T was all but ready to sign up, 
although Nintendo made certain to announce that it had also been 
approached by other long-distance companies. 

Nintendo designers came up with a cartridge that transformed 
the NES into a data terminal. The on-screen interface that ap- 
peared looked like a new version of "Super Mario Bros.," but in 
fact it was a menu of network choices. A click on an icon would 
have the modem connect to a bank, stock-brokerage firm, or what- 
ever the user chose. The hardware package included a modem, a 
keyboard, and a low-priced printer. The NES was being trans- 
formed into a full-fledged low-end PC. 

Market research with consumers revealed to Ruttenbur the big- 
gest roadblock to his network. Not enough Nintendo users were 
interested in banking or trading stocks via modem. Seven percent 
of NES households had accounts with brokerages, and of these, 
most of the users interested in a network were already using one. 
Back to the drawing board. 

Ruttenbur decided to attempt to launch the network in the spirit 
of Nintendo's past successes. At least initially, it would be a fun- 
and-games network, not a business one. The other uses would 
come later. 



BORDERS 395 



The designers came up with a menu of choices that would ap- 
pear when a consumer signed on. One could get on-line game tips, 
and there would be a "chat line," where gamers could "talk" to 
one another. It was modeled after CB lines of other networks. 
Users would choose "handles" to identify themselves and jump 
into a dialogue with dozens or hundreds of people. On computer 
networks, the CB lines were dedicated to specific subjects such as 
cars, computer software, or sex. The Nintendo CB channels would 
be for game talk and socializing. Kids could have access to elec- 
tronic pen pals throughout the country, and eventually the world. 
Ruttenbur's market research showed that Nintendo's prime audi- 
ence would love to reach out and touch one another via Nintendo. 

Beyond the CB service and game tips, the network would also 
have games that could be downloaded — that is, sent from a central 
computer into people's homes. To "capture" and save them, the 
NES needed a disk drive that could copy game programs onto 
floppy disks. When the drive, modem, keyboard, and printer were 
hooked to the NES box, the metamorphosis was complete. 

The most exciting offering of a network for devoted game play- 
ers is the possibility of real-time games — games that kids every- 
where could simultaneously play against each other. The problem 
has been that Nintendo's engineers haven't been able to dream up 
challenging games with large numbers of players, and too difficult 
to program the large mainframes to manage huge numbers of 
smaller contests. Another problem is that initially on-line time is 
going to be far too expensive for kids to play time-consuming 
strategy and role-playing games. 

Work on the network has gone slowly, but the projections Rut- 
tenbur's team came up with show it will be worth the effort. One of 
Ruttenbur's plans, to form a club of network members who will pay 
a monthly fee, would generate "extreme profits," Ruttenbur says. 
"We would have made money in the second year of operation with 
10 percent penetration of Nintendo users." 

Still, in spite of the potential for all this money, there was resis- 
tance within the company. Ruttenbur couldn't get answers to his 
questions or okays for key decisions. Minoru Arakawa, preoccu- 
pied with everything but the network, particularly as Nintendo 
geared up to launch the Super NES, was rarely accessible. 



396 GAME OVER 



Although the network is now on hold, Nintendo has done noth- 
ing to dampen public anticipation for it. At a press conference at 
the Consumer Electronics Show in January 1991, Peter Main, re- 
sponding to a reporter's question, said, "Development of the net- 
work continues on a very active program. Two years ago there was 
much speculation about applications — financial systems, banking 
systems. They were floated around, and with that came the expec- 
tation that the real product was right around the corner. But our 
focus is the entertainment business, and the network applications 
we're planning first are primarily focused on entertainment. Devel- 
opment work is on a high priority, although we're not making any 
announcements yet." 

However, in spite of a grandiose vision and sizable investment, 
there was no sign of a Nintendo network through 1991. In part, the 
reason was technology, but Ruttenbur felt the technical problems 
could have been solved. Frustrated, he left Nintendo for MCA's 
videocassette division, and subsequently a start-up software com- 
pany. 

The network quietly died, or so it seemed, until September 1991, 
when it showed new signs of life. Nintendo had been asked to join 
a venture with Control Data Corporation, the company that runs 
lotteries in many states. Control Data had proposed a system that 
would boost lagging lottery sales in Minnesota by making it possi- 
ble to play without leaving home, via Nintendo. The NES would be 
transformed into a lottery-playing machine with a special "game" 
cartridge. A modem, similar to the one designed by Ruttenbur's 
team, would connect to the NES via the port in the bottom of the 
machine. Through the phone lines, homes could have a direct link 
to the Minnesota lottery. 

Nintendo couldn't have invented a better scam. Its dormant 
network would be on the map overnight. The large number of 
people who play lotteries meant that the potential user base was 
enormous; NOA would quickly become the largest network in 
Minnesota and any other states that followed suit. Once it was 
established, it would be able to expand to other on-line services, 
including games, shopping, and more. Otha Brown, a vice-presi- 
dent of Control Data, noted that the new system could increase 
lottery volume by 10 to 15 percent. It would also raise Nintendo's 



BORDERS 397 

prominence in the network industry by 100 percent, and it would 
be sanctioned (and partly funded) by the state of Minnesota. 

A limited test was announced. Ten thousand homes would be 
hooked up. Participants would pay a service charge of $10 a month 
for the software and modems that would allow them to play all the 
state's lottery games. After players set up accounts with the lottery, 
they would use the NES to select numbers, which would be stored 
electronically in the central lottery computer and in a file in the 
system at home. One analyst, Gary Arlen, of Arlen Communica- 
tions, said, "I've been looking for the killer [on-line] service. This is 
the kind of thing that makes sense." 

It did, but the lottery plan was too good to be true for Nintendo. 
The state's attorney general criticized the program. In spite of 
passwords and other safeguards built into the system, he feared it 
offered too much opportunity for children, some of them quite 
adept with computers, to gamble. In addition, state-promoted at- 
home gambling would set a bad example for kids. Although the 
Minnesota announcement had brought Control Data a flood of 
calls from other states interested in a Nintendo Network, the lot- 
tery director bowed to pressure from the state legislature and can- 
celed the test. After all the excitement over Minnesota, the 
Nintendo Network was back where it had been: nowhere. 

Probably some on-line network will be almost as prevalent as 
telephone lines early in the twenty-first century. Modems that can 
cheaply send larger amounts of information are forthcoming, and 
fiber-optic lines will carry more information reliably. The hardware 
and software behind the future networks will be powerful, easy to 
use, and inexpensive. Bill paying will be simple, less time-consum- 
ing, and cheaper than paying bills by hand, and volumes of paper 
will be saved. Shopping, travel planning, and countless other tasks 
will be done easily via networks. Entertainment possibilities, in- 
cluding phenomenal games, will be routinely available on net- 
works. The question is not whether mass networks will arrive but 
whether there will be a Nintendo network. 

By the end of 1992, it appeared that Nintendo would miss out on 
the enormous opportunity. If it did, the reason would be a lack of 
vision and commitment to it Jerry Ruttenbur said the network 
never flew because Minoru Arakawa didn't support it in spite of a 



GAME OVER 



sound business plan and projections of huge profits. "It was 
Yamauchi's dream, not Arakawa's," Ruttenbur said. "Arakawa 
never bought into it." 

In 1992, when reporters quizzed Arakawa about his vision of 
NOA's future, he was emphatic about only one thing: "No one is 
better at entertainment software than we are." But he seemed 
unsure about Nintendo's role in the larger consumer-electronics, 
multimedia, computer, and communications industries. 

Hiroshi Yamauchi had built the Famicom with the potential to 
expand. He launched a network in Japan and formed technological 
alliances with Sony, Philips, and other companies. Because of this 
foresight, Nintendo was poised to be more than a video-game 
company, but Arakawa appeared to be uneasy in these leagues. 
The deals with Sony and Philips were pulling him into multimedia 
even though he didn't seem to understand exactly what it meant. 
With vague ideas about a network, Nintendo had the potential to 
become a communications company, but Arakawa was unable to 
set a clear direction. Uncomfortable in the world of keyboards and 
CD-ROM drives, he was in a position to transform Nintendo into 
a leader in the converging computer and consumer-electronics 
industries, but he seemed to have fallen into this position haphaz- 
ardly. This was very different from his invasion of the U.S. video- 
game industry, which had been marked by a vision and tenacity. 

Nintendo isn't the only company that doesn't know how to pre- 
pare for the future. Many companies — Sony is the best example — 
are going in as many directions as they can at once, in the hope 
that one of them may be the right one. Others, such as Philips, are 
betting on a single product. By the time there is a shakeout, 
Arakawa may have set NOA on a clearer course. Throughout 1992 
it seemed that he was trying to find this new direction. In the 
meantime, Nintendo has been carried along by the momentum of 
the NES. 

Arakawa's apparent lack of resolve was deceptive, however. 
"We'll let the others fight it out," he said in an interview. "Con- 
sumers will decide. We'll just continue to do what we do the best." 
By following this limited approach, Nintendo may be in the best 



BORDERS 



possible position when it comes time to commit to a specific new 
direction. In the meantime, Nintendo was working in secret with 
many companies on the cutting edge of technology. 

NOA had commissioned a study by Market Data Corporation, 
and its results sobered Arakawa and company. Top-level staffers 
met in the Zelda conference room, settling into cozy purple chairs 
around a massive table made up of smaller tables that had been 
pushed together. Representatives from Leo Burnett, the ad 
agency, and Nintendo's top brass, including Arakawa, Main, 
White, Shigeru Ota, and Gail Tilden, were all present. Explaining 
the results of study, the man who addressed the group uttered the 
words "slow growth" and "erosion" so many times that the mood 
turned dark. Nintendo had been used to meteoric growth and 
increasing excitement over its products. Now, the study said, many 
of its players were abandoning Nintendo for Sega, while others had 
lost their interest in video games altogether. The study of eight 
hundred people revealed some good news too. Of those families 
with systems in their homes, 90 percent actually play them. Also, 
more girls between the ages of six and fourteen were becoming 
primary players, and their level of satisfaction was intensifying. 

But the fact was that the primary players Nintendo had counted 
on were beginning to age, and their satisfaction with the product 
was lessening. Kids still played a lot— in the sample, they spent an 
average of 2.3 hours a day playing Nintendo five days a week— but 
they were "more apathetic, less involved" with it. The worst news 
was that "it isn't as cool, not as much the thing to do." 

The survey was by no means conclusive, but it did indicate that 
Nintendo needed new strategies in order to retain its dominant 
position. Segmentation was a key— the company would have to 
market specific products to specific groups. One group that would 
remain a relatively easy sell was younger kids, for whom Nintendo 
was still the coolest. 

The respondents rated Nintendo and the competition in a num- 
ber of areas. It scored highest in terms of fun, choice of games, and 
excitement, but the numbers were less dramatic than in earlier 
years, when it had an absolute lock on its target group. There were 
glimmers of hope, insofar as seven of ten people in the survey 



400 GAME OVER 



wanted to buy the Super NES: 30 percent "probably" would, and 
42 percent "definitely" would. (Peter Main cracked from the side- 
lines, "Good! So no advertising.") A message also came in about 
Mario: 96 percent of the people surveyed knew Mario and 83 
percent liked him ("Good! We'll exploit him more," Gail Tilden 
chimed in). On the other hand, there was great concern that a 
third of Nintendo's heavy users were becoming bored. 

The Nintendo chiefs brainstormed and set a course designed to 
win back the ground they had lost. Younger kids were bombarded 
with Nintendo advertising for the SNES, and a new product was 
released in early 1992, the Super Scope 6, an awesome wireless 
infrared bazooka that came with six shooting games. Next, in fall, 
came "Mario Paint," a remarkable program that allowed kids to 
make their own animated cartoons set to music they created them- 
selves (using preprogrammed "instruments," including a pig 
snort). Kids who wanted the Super Scope 6 or "Mario Paint," and 
there were many, would also need an SNES. It was important that 
Nintendo win the younger kids, since they were the ones who 
would determine much of the industry's immediate future. A 
changing of the guard was coming. A new group of kids was com- 
ing of age (that is, of Nintendo age) while older Nintendo users — 
the first wave of the Nintendo generation — were discovering Guns 
N' Roses, sports, books, and even girls. 

Since Nintendo had been around before their time, young kids 
did not view the company as the cutting edge of culture, but it was 
still a significant part of their world. The frenzy over video-game 
playing that had arisen back when Nintendomania first possessed 
America's youth had calmed, and video games seemed to have 
taken a place among kids' (and many adults') lives as just another 
form of entertainment. But the market for video games continued 
to expand, and Nintendo still had the largest chunk. Sales were 
living up to NOA's expectations, and it had every reason to believe 
that they would continue to grow — and not only because of the 
ways the industry would expand, such as CD-ROM or multimedia 
networks. U.S. census figures showed that in 1989, the most recent 
figures available, there were already 2 million more children under 
age five than there had been in 1984, a total of 18.4 million. Many 
of them were the children of older parents, who traditionally spent 



BORDERS 401 



more on their kids than did younger ones. These kids were enter- 
ing Nintendo's clutches in the early 1990s. 

On the other hand, competition and a sagging economy had 
shaken Nintendo, and its hold on the industry had been loosened. 
Nintendo now had to give mark-down money to retailers, for in- 
stance. Older games were put on sale, sometimes for as little as $15 
or even $7 for games that had originally been priced at $40 to $50. 
There were no more opportunities for creating shortages because 
retailers weren't complaining that they couldn't get enough prod- 
uct, and Nintendo had eased its restrictions on licensees. 

Industry analysts predicted that each year was going to be Nin- 
tendo's last good year. "Expect Atari all over again," one said in 
1989. "This was their last year as a force," another said in 1990. In 
1991: "A crash is imminent." But each year NOA did better and 
made more money. If the rate of growth wasn't as high it had been, 
the slowdown was viewed as a disaster. But the fact was that in 
spite of a maturing industry, Nintendo raked in higher profits than 
most companies in any industry in any country. 

NOA's new 360,000-square-foot, robot-controlled distribution 
center, which became operational in 1991, was shipping 600,000 
Nintendo systems and games directly to stores every day. When 
Playthings magazine announced the top-selling toys for 1991, Nin- 
tendo or Nintendo-related products held eight of the top twenty 
spots. The SNES was the top seller, the original NES was number 
three (behind the Genesis), and Game Boy was fifth (after Teen- 
age Mutant Ninja Turtle action figures). Three Nintendo games— 
"Super Mario Bros. 3," "Teenage Mutant Ninja TUrtles 2," and 
"Tetris"— were on the list, as was Galoob's Game Genie, which 
worked in conjunction with the NES. 

Sales in 1992 of at least 2 million NES units (below Nintendo's 
projection of 4 million) was remarkable, given that the SNES was 
out and many analysts expected the 8-bit machine to disappear. 
Whether Nintendo would be a $10 billion-a-year business by the 
turn of the century was still a question, but in mid 1992 it remained 
"one of the strongest Japanese corporations," according to Nihon 
Keisai Shimbun. "Its performance continues to astound as the Jap- 
anese index of stocks weakens and other Japanese companies are 
affected by the worldwide recession." 



GAME OVER 



Minoru Arakawa worked to make up for Nintendo's late entry 
into the 16-bit race with the sheer force of his marketing machine. 
At the January 1992 CES, Peter Main announced an advertising 
campaign that Sega couldn't hope to match: $60 million worth. He 
planned the launches of the Super Scope and such promising new 
SNES games as "The Legend of Zelda: A Link to the Past" (also 
known as "Zelda 3"), and "Mario Paint." Sales would also be 
sparked by the release of some great games by licensees, including 
SunSoft's "Lemmings," Capcom's "Super Ghouls 'n Ghosts," and 
their incredibly violent but popular "Street Fighter 2," a home 
version of the most popular arcade game since "Pac-Man." Spec- 
trum Holobyte was one of the newest Nintendo licensees, releasing 
games for the SNES, including a "Tetris" spin-off called "Word- 
tris." LucasArts released "Super Star Wars," with a plot that mir- 
rored the movie and with the phenomenal John Williams score. At 
the summer CES in Chicago, Nintendo announced that seventy- 
five new Super NES games would be out by the end of the year. 
In the weeks leading up to summer break, neighborhood play- 
grounds, perhaps the most reliable oracle for the industry, began 
humming with talk about the Super NES. It continued in school- 
yards in September, and the buzz continued to build for the Christ- 
mas season. It seemed that Arakawa might well be on his way to 
taking back his commanding share of the video-game business, 
which in 1990 had been at least 85 percent. It had dropped in 1991 
to 79 percent, but Nintendo projected it would be up to 82 percent 
(of $5.5 billion) in 1992. This 82 percent was a composite figure 
that represented 95 percent of the 8-bit market, 85 to 87 percent of 
the hand-held market, and 65 percent of the 16-bit market. (Sega 
disputes all these figures, but analysts feel they are only slightly 
exaggerated.) 

Along with the new-product releases designed to jump-start 
sales, Peter Main and his team plotted a barrage of merchandising 
and promotions (including a massive tie-in with Pepsi). There was 
price slashing, a doubling of retailers' ability to earn credit in John 
Sakaley's merchandise-accrual fund, and new billing options, in- 
cluding September dating, which meant that some 1992 orders 
didn't have to be paid until the third quarter of the year. A ground- 



BORDERS 403 



swell was under way that was reminiscent of the first Nintendo 
invasion, quiet at first, but building: Son of Nintendomania. By the 
end of the year, just under 20 million SNES units had been sold 
throughout the world. 

In spite of what happened in the marketplace, Nintendo was still 
in a precarious position due to the Atari Corp. lawsuit, which hung 
ominously over the company through the early months of 1992. 
John Kirby was staging an impressive defense, but juries were 
unpredictable, particularly in the midst of an American recession 
that some politicians, businessmen, and economists blamed on Ja- 
pan. The implications of the suit were so enormous that neither 
Arakawa nor Lincoln could conceive of losing, yet there was specu- 
lation in the courtroom that the outcome was leaning in Atari's 
direction. For Nintendo it would be painful to part with all that 
money, but even more agonizing to have to give it to the Ttamiels 
at Atari Corp. Worst of all, though, would be the precedent. Other 
lawsuits, including the Atari Games suit, and continuing investiga- 
tions by the Federal Trade Commission, would be heavily influ- 
enced by the outcome of the trial. If Nintendo lost, it would 
confirm the view of the company that saw it as ruthless, immoral, 
and illegally profiting at the expense of American companies, and 
the vultures would descend. 

The jury began deliberations during the last week in April, at the 
same moment that Nintendo was being scrutinized by the owner- 
ship committee of major league baseball. 

Lincoln and Mino Arakawa had been invited to a Mariners 
baseball game as guests of Trip Hawkins, who had reserved the box 
of the team's owner, Jeff Smulyan. 

A friend of Hawkins's father, Slade Gorton, Washington's U.S. 
senator, happened to poke his head into the box. Lincoln knew 
Gorton from Nintendo's lobbying efforts. The meeting was 
friendly as the men distractedly watched the Mariners lose. The 
team's owner, Smulyan, also stopped by to say hello. 

Months later Smulyan announced that he was selling the Mari- 
ners; the most likely buyer planned to move the team to Florida. 
Slade Gorton and a group of local politicians and businessmen 



404 GAME OVER 



searched for ways to keep the Mariners in Seattle, and the major 
corporations in the area were approached. Microsoft's Bill Gates 
was one wealthy local businessman who declined. 

Gorton, who had been dealing with Nintendo over the years, 
met with Arakawa and Lincoln because he felt they might be able 
to find investors in Japan who would take a majority interest in the 
club and agree to keep the Mariners in Seattle. 

Arakawa asked the senator if he felt that Americans might react 
badly to the idea of Japanese ownership in America's favorite 
sport, but Gorton said no, not as long as people understood that 
the investment was passive and that the motivation was to keep the 
team in Seattle. Arakawa said he would see what he could do. 

Arakawa told his father-in-law that he had been asked to help 
find investors in the baseball team. Yamauchi had no hobbies other 
than go. He had never played baseball nor had he ever seen a 
game. Nonetheless, he said that he would buy the team. 

In December 1991, Lincoln called Slade Gorton to tell him this 
news. Yamauchi would put up the cash, and Arakawa would over- 
see the investment. Gorton arranged a meeting with other poten- 
tial investors who were interested in the team. Between them an 
offer was put together, based on Yamauchi's majority share in the 
partnership. The group offered $100 million. In addition, they 
agreed to invest at least $25 million in the club, an amount of 
money that had the potential to drastically improve the perpetually 
losing team. 

Yamauchi's partners would include a Microsoft executive named 
Chris Larson and John MaCaw, a businessman who ran MaCaw 
Cellular Communications. Smaller investors would be John Ellis, 
the chairman of Puget Power, and Frank Shrontz, the head of 
Boeing. Shrontz gave weight and credibility to anyone who was 
unimpressed by the other investors, and Ellis would actually run 
the operation. Larson, the second largest investor, would have 
sizable voting power, but the centerpiece of the offer was Hiroshi 
Yamauchi's 60 percent interest, for which he was putting up $75 
million in cash. 

This offer was conveyed to Smulyan, who was ecstatic. He would 
need certain approvals before he could accept it, but he knew he 
had to act quickly. According to his timetable, a deal had to go 



BORDERS 405 



through by May if the team was to remain in town. Smulyan ac- 
cepted the offer before the baseball commissioner and ownership 
committee approved it. 

On January 25, 1992, commissioner Fay Vincent announced that 
the deal would not be approved. Baseball, he said, could not allow 
foreign ownership. The opinion made no sense— Canadians owned 
baseball teams— so he qualified his stance: baseball could not al- 
low non-North American ownership. The deal would not be al- 
lowed even though Yamauchi had agreed to give an irrevocable 
proxy of his voting interest to Minoru Arakawa, a fifteen-year 
resident of the Seattle area. 

Seattle's citizens and politicos were furious. The ownership re- 
quirement was ludicrous, they said. Yamauchi would keep the 
team in Seattle, but he couldn't have the team because he was 
Japanese, while another new owner, an American, planned to 
move the team to Florida. 

This was just the beginning of the storm that raged in the United 
States and Japan. The baseball commissioner's attitude was de- 
cried as racist, or at least reactionary. Only over some people's 
dead bodies would a baseball team fall into the hands of the Japa- 
nese, who were buying up all that was dear to Americans— real 
estate, movie and record companies, golf courses. 

Moreover, the offer came when the American economy was 
reeling in a worsening election-year recession and the Japanese 
were viewed as monsters who had lost the war but won the peace. 
The trade deficit with Japan was more than $40 billion when Presi- 
dent Bush, flanked by the heads of the Big Three American car 
companies, headed to Tokyo to wrestle it down. Wittingly or not, 
the baseball commissioner placed Yamauchi's offer smack in the 
center of the trade issue, making Nintendo a lightning rod for 
America's hostility toward the Japanese. In Japan, banner head- 
lines portrayed NOA as a victim of the latest round of Japan- 
bashing, and in the United States it was either a perpetrator or 
victim of the trade wars. 

Frenetic lobbying commenced. Washington State lawmakers and 
businessmen called on the baseball commissioner to relent. Anti- 
Nintendo forces charged that NOA was itself a racist company, as 
evidenced by its hiring practices, and that it was involved in gam- 



GAME OVER 



bling, thus an inappropriate bedfellow for professional baseball. 
Bill Giles, who owned the Philadelphia Phillies, even worried 
aloud that the sale would be akin to selling baseball to "Middle 
East oil sheiks." 

"Never in my life have I ever been discriminated against," How- 
ard Lincoln volunteered. "The only thing that stopped this cold 
was that Yamauchi was Japanese. I realized what it must feel like 
to be Arakawa or any member of a minority, where you get ready 
to grab the ball and somebody pulls it out of your hands because 
you're black or Hispanic or Japanese." 

Baseball's ten-member ownership committee would be the ones 
to recommend the sale's approval or disapproval to the group of 
all the owners. The committee was made up of a number of team 
owners, including Giles and George W. Bush, the Texas Rangers' 
owner and son of President Bush. Slade Gorton told a Seattle 
Times reporter that if Mr. Bush voted against the Yamauchi-led 
offer, "he would not be helping his father's reelection campaign at 
all." Certainly not in the state of Washington, nor in a growing 
number of places throughout the country where the Nintendo of- 
fer was in favor. 

In Kyoto, Yamauchi was surprised when he heard that the base- 
ball commissioner had rejected his offer. He didn't care about the 
team one way or the other— it was an investment and good PR— 
but he had never expected to be embroiled in such a public contro- 
versy. Yamauchi, who had always tried to keep a low profile, now 
appeared on the front page of The New York Times on February 7, 
and people across the United States were suddenly asking ques- 
tions about him. 

Allegations of racism made by some African-Americans and 
other minorities were quickly dismissed by Howard Lincoln, who 
sent the baseball commissioner a copy of Nintendo's affirmative- 
action policies and their results. But the charge that Nintendo was 
involved in gambling was more difficult to defuse. The Minnesota 
lottery deal that had fallen through was cited as proof of Nin- 
tendo's intention to become involved in gambling. Critics also 
noted that the company had its origins in gambling cards and that 



BORDERS 



the Nintendo Network in Japan offered a horse-race betting ser- 
vice. 

Responding to these charges, Howard Lincoln released a state- 
ment: "We don't have any interest in racehorses, casinos, sports- 
betting parlors, card rooms, racetracks, or other gambling 
activities," he said. "The implication that Nintendo or its execu- 
tives are somehow mixed up with gambling is absurd." 

The ownership committee continued to meet in secret, although 
there were sporadic leaks. Rumors that the deal was dead were 
followed by one that said that the committee had suggested to 
Nintendo that Yamauchi's investment would be approved if he 
lowered his interest to under 50 percent. Yamauchi reportedly 
refused to become a minority owner, causing some to wonder how 
sincere he had been in the first place. Yamauchi said he was step- 
ping in to help Seattle— "to pay back" some of what Seattle and 
the United States had done for him. Then why wouldn't he be 
more flexible? The fact was that Yamauchi was unlikely to agree to 
a minority interest in anything. 

As the deadline neared, popular support in the press and public 
for the Yamauchi-led offer seemed to influence the baseball own- 
ers, and it looked likely that the Nintendo chairman was going to 
get his team. He would have majority ownership, although he 
agreed to have less than a 50 percent vote. There was an additional 
reason that the deal was likely to go through, according to an 
associate of Senator Gorton: he and other politicians had inti- 
mated that baseball's tax exemptions might be reviewed by Con- 
gress if the commission blocked the deal. 

The acquisition was formally approved by the club owners on 
July 1, 1992. In Seattle, if not in the rest of the country, Nintendo 
was viewed as a savior in a town that had been frustrated by the 
large company's lack of involvement in local society and philan- 
thropy. Nintendo gained favorable attention not only on the busi- 
ness pages of newspapers around the country, but on the sports 
pages as well. 

The Consumer Electronics Show in January 1991 was significant 
for Nintendo. The party NOA threw was more than a reward for 



40B GAME OVER 



employees, distributors, buyers, and licensees. It was a statement 
of might. It was not the first time that the company had taken over 
an enormous section of the CES with its own tent, choreographed 
production numbers (with dancing characters from popular 
games), and heavily attended press conferences. But headlines 
suggesting that Nintendo was in trouble despite record profits had 
persisted through the preceding Christmas. It was crucial for Nin- 
tendo to do something to counter the growing sentiment that the 
company might be about to stumble. 

On the first day of the CES, Nintendo held an 8:00 a.m. press 
conference. Besides heralding new numbers, projections, and sales 
figures, Peter Main announced that NOA cartoon shows were 
reaching 40 million viewers a week, and discussed the Kool-Aid 
tie-in and several other promotions. He also announced the Super 
Mario Bros, movie. It was significant that Nintendo was moving 
into films, according to a journalist who asked if Nintendo would 
be going after more of Disney's turf— theme parks, in particular. 
Peter Main had no firm answer. He said the company had been 
approached and that he had left the possibility open. "The value of 
characters such as Mario are very strong. As we go down the road, 
you're going to see many applications." 

At the Nintendo party that evening, after singer Kenny Loggins 
left the stage, Peter Main and Howard Lincoln stood in front of the 
microphone. Main had glitter in his hair, Lincoln wore a slicked-up 
punk spike surrounded by a glow-in-the-dark halo, and they both 
wore black silk Nintendo jackets. With Bruce Donaldson, head of 
sales, they gave away a Chevrolet Geo and several other prizes to 
winners of the Campus Challenge. Main then called Arakawa to 
the stage, and people who knew him almost choked on their beers 
and canapes. Arakawa's thick nest of hair was teased high on his 
head and it was shimmering with glitter. Wearing huge glasses 
made out of bent fluorescent tubes, he grinned from ear to ear. A 
DJ played "Allie Oop" and Arakawa, Main, Donaldson, and Lin- 
coln sang and danced, swaying and singing, karaoke-style. It was a 
memorable night, an unabashed display that Nintendo's leaders 
felt they could do no wrong. 

At the next CES, in June 1991, Nintendo was once again sup- 
posed to be about to topple, according to industry insiders. Never- 



BORDERS 409 



theless, Nintendo executives made higher sales predictions for the 
year than anyone expected. The company also announced its con- 
troversial alliance with Philips Electronics, and at the same time 
took on Sony. 

This was the first CES at which Nintendo's living mascot wasn't 
present. Howard Phillips had left the company, a fact that NOA 
tried to minimize. Although Arakawa had continued to be amused 
by Phillips and to realize his value as Game Master, there were 
reports that Phillips was ruffling feathers. "He'd grown up," a 
colleague said. "That was the problem. He was getting big-headed 
and people didn't like it." 

It was not the amicable parting that both sides pretended it was. 
Phillips knew things were changing; he admitted to his colleagues 
that he was growing bored. Still, it was a shock when he announced 
that he was leaving for a job at LucasArts. He wanted to pursue 
educational aspects of video games, he said, though he added, "It's 
hard to leave. It's like giving up a good pair of tennis shoes." 

Tony Harman defended Phillips after he was gone. "A lot of 
people say they won't miss him, but I will. He gets engrossed in 
things and forgets about all the details. He annoys a lot of people 
and they get ticked off. But he's one of the few people who be- 
lieved in the company with that childlike passion. We could argue 
about whatever happened and come up with a better solution. He 
made me hate life sometimes but I miss him." 

Nintendo Power magazine bid Phillips farewell in its own way by 
having the cartoon character of Howard ride off into the sunset, 
leaving his partner, Nester, on his own. 

Phillips, who had grown up at Nintendo, didn't last long at Lu- 
casArts. He had moved his family to a San Francisco Bay Area 
suburb, but he missed the seclusion of his retreat in Seattle. When 
he left LucasArts, he returned to his farm, set on a brook amid a 
forest of pine trees, and found a job at a Nintendo licensee. 

At both 1992 Consumer Electronics shows Nintendo put up an 
invincible front in the face of renewed speculation about the com- 
pany's looming demise. One sign of trouble was the announcement 
that the once sancrosanct policy of no paid advertising in Nintendo 
Power was being reversed. The SNES push seemed to be working, 



410 GAME OVER 



but the positive signs were a bit shaky, and Nintendo's position in 
the CD business partly hung in the balance. Arakawa admitted 
that Nintendo's success contributed to the problem. "We are still 
having growing pains," he said. "There are quite a few people who 
have grown with the company, but we also have had to hire people 
from outside. Then it becomes a different company. We don't have 
time to teach them how to run the business. Now we have fifteen 
hundred employees, and we have to catch up with them." 

Arakawa admitted that he had stopped enjoying the company's 
annual picnic because it was too big, too impersonal. Gail Tilden 
felt the same way. "We've gotten so big we don't know everybody 
anymore," she said. (Arakawa's favorite picnic was still the one 
back in 1986, when he was the target in an egg toss.) 

As part of his vision of Nintendo's future, Arakawa bought land 
where he planned to build a Nintendo "university," a center at 
which game designers from all over the world would come together 
to work. "It is where we will find and cultivate the geniuses of the 
future," he said. Another idea was being pursued with Disney: for 
fantastic Disneyland and Walt Disney World rides tied to the sum- 
mer 1993 Super Mario Bros, movie. But these grandiose plans were 
on hold until the jury returned its decision on the Atari lawsuit. 

Yoko Arakawa worried that her husband was taking his job too 
much to heart, working longer and longer days, juggling more and 
more people, attempting to balance an overwhelming amount. He 
kept a routine that he rarely varied. He was up at five for a bath, 
steam, and sauna and then a brisk walk with his dog, a black Lab 
named Pippin. From his study, he placed morning calls to Europe 
—the day was ending for Shigeru Ota and Ron Judy there— and 
prepared for the day's meetings. He headed to Redmond at eight 
or nine and returned anywhere between nine at night and three in 
the morning. The last few hours were often spent communicating 
with NCL in Japan (he talked to Yamauchi almost every night). 
Yoko waited up for him and kept dinner warm. 

Yet no matter how hard he worked, Arakawa was never as com- 
pulsive and humorless as Hiroshi Yamauchi, and he always man- 
aged to find time for his children. In spite of the pressures at 
Nintendo, he took vacations with his family. They skied once a 



BORDERS 4 11 



year and spent time in Hawaii at the houses he had built on the Big 
Island. Arakawa reserved one for his family each Christmas, and 
Howard Lincoln took another. They were there again at Easter 
1992, just before the Atari case ended. 

They returned with trepidation, as the mood in the courtroom 
had them expecting the worst. 

Meanwhile, Yamauchi sat back and watched from Kyoto, plan- 
ning for a variety of outcomes. 

The live-in maids at the Yamauchi family home were gone. A 
day maid and a cook came each morning and left after supper. 
Another maid came a few times a week to clean. Michiko 
Yamauchi had run the household since her husband's grand- 
mother, Tei, passed away in 1979, a year after Hiroshi's mother, 
Kimi, died. Michiko ran the home informally. Some modern furni- 
ture was brought in, and the teahouse was used as a storage closet. 
Sada had never invited people in, but Michiko enjoyed entertain- 
ing. The household lit up with parties and visits from friends and 
relatives. 

Hiroshi Yamauchi avoided his wife's parties and usually kept to 
himself. On rare occasions he might reluctantly accompany 
Michiko to a family wedding or a relative's dinner party. He no 
longer caroused at the Gion. His only relaxation came from a 
tumbler of Scotch and a game of go. His most frequent partners 
were older masters, men like Yoshio Komeda, who owned the 
Yasaka Taxi Company and a foreign-car dealership. Otherwise, 
Yamauchi was preoccupied with Nintendo, which had been a 
wedge between him and his family for more than forty years. His 
three children had always found him an elusive, angry father given 
to unpredictable fits of anger. Age had mellowed him, but only 
slightly. He was a better grandparent than he had been a father, 
but although he enjoyed having the Arakawa children around, he 
never played with them. When his rare good moods were followed, 
unexpectedly and unprovoked, by outbursts, Michiko would sigh 
and tell her grandchildren not to worry. "Grandfather is tired," she 
would say. "He means nothing. It is his style." 

Yamauchi's obsession with Nintendo had been rewarded as the 
company became one of the most successful in Japan's history, yet 



412 GAME OVER 



he observed year after year of record-breaking sales and profits 
without celebration. He said he didn't take seriously the findings of 
a book indicating that Nintendo was better run than Sony, Mitsubi- 
shi, and Toyota (and had far better productivity); he took this for 
granted. His family came to realize that none of the affirmation 
Yamauchi received over the years meant anything to him. 

With his company facing potentially devastating threats from 
lawsuits and government investigations that could cripple his 
American operation, Yamauchi moved in another direction. His 
drive in Europe was explicitly designed to cushion the blow of the 
potential weakening of NOA. The plan was to make Nintendo, like 
Sony, so large throughout the world that the political "irregulari- 
ties," as he called them, in other countries would have less impact 
than when Nintendo was dependent on NOA. 

Although Yamauchi was attempting to do many things with his 
company, one analyst in Japan noted that his primary goal re- 
mained "Take the money and run." "Yamauchi has no ambition to 
be a lord of a video-game industry," said the analyst. "He wants to 
make an enormous amount of money and wield influence in Japa- 
nese society. No one should forget that." 

Shinichi Todori, stern and rugged, seemed disdainful of West- 
erners, yet Yamauchi put him in charge of Nintendo's growing 
international business. For years Todori had overseen a number of 
distributors who sold Nintendo's products in Europe, Latin Amer- 
ica, Australia, and select countries in Asia (although much of that 
continent was lost to counterfeiters). 

Todori was in charge of Europe, the biggest push for expansion, 
where Nintendo was only one of many Japanese companies to view 
the changing face of the continent— the maturation of the Com- 
mon Market and the opening of Eastern Europe — as an invitation. 
Although Nintendo was no stranger to European markets, the 
effort there lacked direction. In some countries, Nintendo had 
fallen behind Sega; in others, video games were less popular than 
computer games. European computer-gamers were younger than 
in Japan and America; they tended to be under sixteen, the same 
kids who were America's and Japan's biggest video-game custom- 
ers. Sales of floppy-disk games far outpaced cartridge sales. In 



BORDERS 413 

fiscal 1991, Electronic Arts earned 35 percent of its profits from 
Europe, mostly from computer games. 

The NES had been available in Europe since the early 1980s. 
The company had had a distributor in the Scandinavian countries 
and one in Germany since the introduction of the Game & Watch. 
In 1987, Mattel agreed to distribute the NES in Italy and the 
United Kingdom. Mattel successfully distributed Nintendo prod- 
ucts in Australia and New Zealand, but its European operation 
treated the NES as if it were a toy and expected quick, short-term 
profits. A Nintendo launch required a significant investment, 
which Mattel never made in those countries. As a result, by 1991 
Nintendo had almost no presence in Italy, the only territory that 
Mattel retained. 

The Scandinavian distributor released the NES at the end of 
1986, but 1988 was the first year that any European companies had 
significant distribution. Since then, Nintendo had done best in 
Scandinavia and France, where 10 to 12 percent of the homes had 
the NES system. 

France and the Benelux countries were Ron Judy's domain. He 
had left NOA when Peter Main took over as vice-president for 
marketing. "I'm an entrepreneur," he says. "By the end of 1986 my 
job was policing, overseeing, reading reports, writing memos." In 
1983, Judy had set up distribution for Nintendo's coin-operated 
games in Europe and had fallen in love with Paris. He decided 
there was no reason Nintendo should not be successful there, and 
Arakawa allowed him an exclusive distributorship. 

In April 1987, Judy took an apartment in Paris and opened up a 
small office above the Champs-Elysees. His profits from selling 
Nintendo products in France, Belgium, the Netherlands, and Lux- 
embourg were huge. There was every indication that sales would 
expand through the later 1990s; he believed the NES could eventu- 
ally end up in 25 percent of the homes in those countries. He also 
saw serious potential in the United Kingdom, where he took over 
the distribution after Nintendo's obligation to Mattel ended. 

Judy's Nintendo International was a private company that main- 
tained an independent relationship with NCL in Japan. Todori was 
his contact, although he also consulted with Minoru Arakawa 



-414 GAME OVER 



about many decisions. Judy was a big customer of NCL, buying 
NES systems and games and paying in advance. He had the games 
translated, then commissioned NCL, which took its usual large 
profits, to manufacture them. 

While the NES had modest sales in most European countries, 
Game Boy went through the roof. Almost three times more were 
sold in France its first year than were expected (1.4 million instead 
of 500,000). Game Boy took France by storm. Some schools for- 
bade kids to bring it to school because children were playing, not 
working. Club Nintendo magazine, produced in France and distrib- 
uted (in several languages) to Nintendo users in the countries 
under Judy's domain, had a circulation of 800,000, and was shoot- 
ing for 1.5 million in 1992. The circulation through Europe would 
likely exceed Nintendo Power's, since Club Nintendo was free. It 
was already Europe's most popular magazine for children. 

As Europe opened up in the early 1990s, Yamauchi realized he 
needed to have a more organized international organization. From 
Todori he learned about the peculiarities of the markets in each 
country. He was warned that it was a mistake to attempt to market 
to Europe as a whole, since each country was so different, though a 
concerted strategy was certainly possible. 

The discussions led to the decision to establish a Nintendo of 
Europe to direct the operation. It would allow autonomy for Nin- 
tendo's exclusive distributors in various countries, but would direct 
and assist them. Distribution was unique in Europe by country, as 
were the kinds and sizes of stores that carried Nintendo's product. 
In France, Judy sold crateloads of machines to "hypermarkets," 
single stores as large as five American Kmarts, as well as smaller 
orders to toy and appliance shops. Merchandising was developed 
specifically for the various sales locations, and Nintendo of Europe 
provided displays and other merchandising paraphernalia. Adver- 
tising sensibilities were also remarkably different, so distributors 
hired local agencies to come up with plans. 

Yamauchi decided he could steal players from computers be- 
cause the NES made it so much easier to play most kinds of video 
games. He was confident that Mario could be used to convert 
game players to the NES and ordered a push to establish him in 
Europe. 



BORDERS 



NOE headquarters were to be located in Germany, a vastly 
underexploited market. Shigeru Ota, the former bookkeeper who 
had been monitoring the sell-through of Nintendo products in 
America, was tapped to open the office, and was given ambitious 
goals. First, he was assigned to get Nintendo systems into 20 to 35 
percent of German homes. Second, he would help coordinate op- 
erations in Europe, working with Ron Judy and other distributors. 
NCL bankrolled the German subsidiary and planned a $10 million 
introduction. It was slow going at first, although Game Boy sold as 
strongly in Germany as it had in France. 

Although the 16-bit war had spread to Europe, Nintendo de- 
cided to sell as many NES units as possible before confusing the 
market with the Super system. Waiting meant that the Sega Gene- 
sis was gaining a large foothold, but Ron Judy was unconcerned. 
"We still need to develop the game players here. The 8-bit system 
is still selling very well; it's nowhere near its peak. The bigger the 8- 
bit base, the more potential customers for the 16-bit machines," he 
pointed out. Still, it was a risky posture. Nintendo could fight the 
16-bit systems with marketing dollars, but it was unlikely that it 
could devastate its competitors with old technology. 

In Kyoto, Todori oversaw the international operations and sup- 
plied goods to Judy's and Ota's companies as well as the other 
distributors in Scandinavia, Italy, and Spain. There is speculation 
that Todori might move to Europe in spite of his reluctance to do 
so because Yamauchi wants more control over the operations 
there and Todori's presence would accomplish this. 

Ron Judy's ambitions for Europe exemplified the direction of 
the Nintendo push. "When we started NOA, I had the goal of 
being bigger than Nintendo of Japan. We did that. When I came to 
Europe, my goal was to be bigger than NOA, and we will be." 
Arakawa and Ron Judy raced to sell more Game Boys. Arakawa 
had had a head start, but by 1992 Judy was catching up, as he 
turned the Nintendo business in France, the U.K., and Benelux 
countries over to Bandai, and he returned to Seattle. Bandai, a 
Japanese toy company that had NOA and NCL licenses, planned a 
push in its countries equal to NOE's in Germany. 

For the parent company, this was all good news, and Hiroshi 
Imanishi said that NCL's dependence on NOA was shifting. In 



41B GAME OVER 



1992, NCL's shipments to Europe exceeded the shipments to the 
United States for the first time. Units worth $300 million went to 
Germany in NOE's first year, and in 1992 a total of 6 million Game 
Boys and 3.5 million NES units sold in Europe. The Super NES 
was introduced in some European countries, and Nintendo sold 
about 3.5 million in 1992. Floods of software, cautiously parceled 
out in Europe, would make up the difference in dollars. "Once the 
whole of Europe becomes excited, we will grow four times," Iman- 
ishi boasted. Then, he said, Nintendo would make a push in South 
America and more of Asia. "We don't find any difference in kids' 
feelings nationwide or worldwide," Imanishi says. "Our R&D is 
thinking about the world as a target for each of their products." It 
was not, he said, a question of if but of when. Marketing and 
production capabilities were all that held Nintendo back. "We 
would like to see Europe for now as the main target," he said. 
"When we have taken our rightful place there, the rest of the 
world is waiting." 

Eastern Europe was a low priority, but it was not being written 
off. The Austrian Nintendo distributor introduced the NES and 
Game Boy into Hungary in 1991. Game Boy took off there, al- 
though the numbers were necessarily modest compared to France 
and Germany. Australia and New Zealand had rapidly expanding 
markets; in those countries Mattel, the local distributor, saw the 
potential of household penetration as high as in the U.S. Korea, 
Mexico, and Latin America were also all targeted for expanded 
operations. 

Whether Todori headed to Europe or not, there was one strong 
indication that much of the operation would still be managed from 
Redmond. Although all contractual arrangements in Europe were 
between NCL and the different entities on the Continent, NOA's 
legal department reviewed the deals and advised NCL on them. 
With Howard Lincoln's assistance, Arakawa was overseeing more 
of the major decisions regarding NCL's policies, from promotions 
to marketing plans. "The United States is not the only important 
market I'm looking at," he said. 

"We do not see borders in this business," Hiroshi Yamauchi said 
several years ago. "Some countries may be too poor or have heavy 



BORDERS 4 17 

tariffs on imports, but with those exceptions we will go anywhere in 
the world. There are no borders." 

If an individual week can foretell the future, the one that ended 
May 1, 1992, said volumes about the fate of Nintendo and many of 
America's and the world's electronics industries. On that Friday, 
after four days of deliberation, the jury in the Atari Corp. suit 
reached its verdict. The San Francisco courtroom was packed. Sam 
Tramiel seemed cocky. He was sure he had won. 

There was an audible gasp in the courtroom when, against all 
expectations, the jury found Nintendo not guilty. 

Howard Lincoln seemed more shocked than the many represen- 
tatives of the other companies present in the room. When it sank 
in, he hugged John Kirby and dispatched an associate to get 
Arakawa on the phone. "Mino," Lincoln teased, in a sober voice, 
playing it out, letting his gloomy silence imply the bad news until 
he couldn't stand it any longer, "we won." 

In his Redmond office, Arakawa was too shocked to say any- 
thing at first. Finally he whispered, "We did?" 

They planned a celebration before hanging up. Then Lincoln 
composed himself before calling Japan, where it was 3:00 a.m. He 
woke up Hiroshi Imanishi's colleague Yasuhiro Minagawa, who 
spoke English, and Minagawa, as instructed, called Yamauchi "We 
won," he reported. 

Yamauchi said only, "That is good." 

The jury unanimously concluded that Nintendo's licensing pro- 
gram had not hurt Atari. They deadlocked on two other issues 
relating to monopolization and restraint of trade, but John Kirby 
was confident. "I think [it] will be disposed of very rapidly," he 
said. "We're not only happy, we're delighted." 

This was an understatement. At NOA, thirty or so top staffers, 
from Peter Main and Bill White to game counselors, were dancing 
in the hallways. A week later Kirby's predictions came true: Judge 
Smith dropped the remaining charges against Nintendo. The Wall 
Street Journal reported, "The case may prove to be a landmark for 
Nintendo along the lines of IBM surviving a series of antitrust 



418 GAME OVER 



cases. ... No other company may be able to summon the 
resources for another broad attack like Atari's. . . ." Sources 
reveal that Atari agreed not to appeal so that it would not have 
to pay a costs bill from Nintendo of between $500,000 and 
$1 million. 

The decision came in a week that had begun with a two-part 
front-page article, also in The Wall Street Journal, on the troubles 
inside the major Japanese industries. The first installment, written 
by Jacob M. Schlesinger, was a look at the decline of the Japanese 
electronics industry, which had been considered indestructible. "It 
was only a few years ago that a group of Japanese companies with 
deep pockets and superior factories drove most American compet- 
itors out of products like television sets, radios and critical memory 
chips," Schlesinger wrote. "An American company invented the 
videocassette recorder, but it was Victor Co. of Japan Ltd., known 
as JVC, that mastered its mass-production and helped the Japa- 
nese dominate the field. Japanese companies threatened to do the 
same with computers, high-definition television and a range of 
other advanced products. Their triumphs created panic in the U.S.: 
Japan, people said, would soon control the world's technological 
fate." 

However, Schlesinger reported, those Japanese companies were 
stumbling, "and not just because Japan and its overseas markets 
are in an economic slump." JVC was expecting its first annual loss 
since 1951. Fujitsu, Hitachi, Matsushita, Mitsubishi Electric, NEC, 
Sony, and Toshiba were all expecting to report that their combined 
profits for the year were down to half of what they had been the 
previous year. One of the reasons for the decline was a shift in the 
importance of hardware in favor of intellectual property, or soft- 
ware. "Notably, one of the few Japanese electronics companies 
currently doing well is Nintendo Co.," Schlesinger wrote. 

Also on May 1, Minoru Arakawa announced a reduction in the 
price of the Super NES. Sega then lowered its prices, and Nin- 
tendo followed suit, until both systems were available for under 
$100. At this price neither company was making much on the 
hardware, but the idea was to blow each other out of the water. 
The Christmas season was coming, and analysts predicted that the 



BORDERS 



Super NES would outsell any other product. Arakawa's goal of 
dominance in the 16-bit video-game market seemed reachable, 
although Sega was putting up a good fight. If Nintendo did suc- 
ceed, it would continue to be the biggest threat to the array of 
American, European, and Japanese companies that were fighting 
for the electronics industry of the future. 

At Nintendo's annual shareholders' meeting in Japan in June 
1992, Hiroshi Yamauchi made his report. In 1989, Nintendo had 
celebrated its hundredth birthday. Now, three years later, its sec- 
ond hundred years had begun with promise. Today, both Sony and 
Matsushita were reporting sharply weaker annual results whereas 
Nintendo's pretax profits were up 14 percent from fiscal 1991, to 
almost $1.25 billion, on sales of $4.3 billion. Nintendo had sold a 
total of 114.2 million hardware systems to 40 percent of all the 
homes in Japan, 33 percent in America, and a growing percentage 
in Europe. This included 64.2 million NES units, 32.2 million 
Game Boys, and 17.8 million Super systems. The households with 
all those systems were buying unprecedented numbers of software 
from Nintendo and its licensees. 

The coming year, Yamauchi promised the shareholders, would 
show even greater sales and profits. Within the decade, Nintendo 
would double in size. 

In late 1991, a reporter asked Yamauchi if he had chosen a 
successor. "I have not decided yet," he answered. 

Yamauchi's son, Katsuhito, had entered the family business at 
Nintendo in Canada, but lasted only a year there. Language was a 
problem, and the business was not his forte.. When the job didn't 
work out, Arakawa helped him form a company in Vancouver that 
would sell Nintendo products in World of Nintendo kiosks in shop- 
ping centers and malls. 

Yamauchi's daughter Fujiko had married a doctor and lived in 
Japan, quite content to be separate from Nintendo. Other possible 
contenders for Yamauchi's position were his top officers, Shinichi 
Todori and Hiroshi Imanishi, though Imanishi himself admitted, "I 
am better to serve the president." 

In the final analysis, there were few doubts that Yamauchi's 
successor would be Minoru Arakawa, although there could be no 



420 GAME OVER 



certainty. Even Howard Lincoln, Arakawa's biggest supporter, felt 
more comfortable with Yamauchi in charge. "As long as he's the 
boss, the better I'll sleep at night," he said. Arakawa acknowledged 
modestly, "Mr. Yamauchi is the best president for Nintendo." 

If Arakawa were to take over, there would be changes. The 
company would become less of an autocracy. Arakawa relied on 
others for the decisions that Yamauchi controlled by intuition and 
fiat. One of Arakawa's assets was that he knew his limitations. "I 
do not have the product sense of Mr. Yamauchi," he said. But his 
critics acknowledged that he had an exceptional ability to hire 
talented people. Also, while Yamauchi was inaccessible and often 
terrifying, Arakawa was available and responsive. The difference 
worried some people, who felt that Arakawa was too nice, that he 
lacked the dynamism required to lead the company. Nintendo had 
not succeeded by being nice. Arakawa had proved that he was 
determined and effective, however, even if his style was unassum- 
ing. He had, after all, led the drive that brought in up to 60 percent 
of NCL's profits before sales in Europe took off. 

Speculation about Yamauchi's retirement continued, but there 
was no reason to believe that he would do so before the late 
nineties. Although he was transferring some responsibility to 
Arakawa in Redmond, he wasn't ready to give up complete control 
to anyone, and he was as confident as he ever had been. After a 
slowdown in 1991, 1992 turned out to be the video-game industry's 
biggest year yet, with Nintendo regaining its considerable share. 
Nintendo was pulling ahead of Sega in the 16-bit race and, allied 
with Sony, it was ready to do battle for the multimedia market. 
Yamauchi had secured the power to control CD-ROM software 
with a licensing agreement that could be as restrictive as the one 
he had used to build Nintendo, and the most significant attempts 
to stop him had thus far failed. The threats to his dominance in the 
massive American market were evaporating one by one (in De- 
cember 1992 the FTC announced that "no further action is war- 
ranted" in its Nintendo investigation and the case was closed), and 
the European invasion had begun. "No one can stop us," he said. 
In the U.S. Arakawa said, "I don't think the other companies 
understand that they do not have what Nintendo has. It is why we 



BORDERS 42 1 



will grow. Maybe the growth will not always be as fast as it has 
been, but it will continue." Howard Lincoln added, "We are inter- 
nationalizing. The momentum has begun. Anyone who chooses to 
underestimate us will lose." The tiger was poised, with renewed 
confidence, ready to take on any new threats. 



EPILOGUE: FOREST 
OF ILLUSIONS 



Henk Rogers had founded a joint-venture company in Moscow in 
1989 as a way to fund new projects and help his friend, Alexey 
Pajitnov. Rogers's joint venture worked with Russian companies 
such as Doka, the trading company that handled the rights to 
"Welltris," Pajitnov's quasi-three-dimensional version of "Tetris." 
A New York Times reviewer of "Welltris" noted the circuitous route 
by which the game reached America: " 'Welltris' was . . . created 
by a Soviet mathematician, licensed by Doka, a Soviet trading 
company, to Bullet-Proof Software, a Japanese company, which 
licensed it to Spectrum Holobyte, an American company . . . 
'Welltris' is not a game, it is an obsession." 

This joint venture allowed Pajitnov and his colleague, Vladimir 
Pokhilko, to retain rights to games they built and, potentially, to 
earn money for them. The two had other ideas for games, and for 
"human software," psychology-based programs that would be ad- 
vanced implementations of ideas Pajitnov had explored in his Bi- 



FOREST OF ILLUSIONS 423 



ographer program. Pokhilko, who wore a longer version of Lenin's 
beard over a flushed, round face, had an idea for a program that 
explored genetics in an on-screen, computer-generated aquarium. 
They called the project "Elfish," for electronic fish. When Rogers 
agreed to fund it, development commenced in a lab in Moscow. 

The two Russians worked jointly on new games. One was a video 
game called "Hatris," another relative of "Tetris," with puzzle 
pieces that dropped from the sky. This time the pieces were hats 
(bowlers, top hats, fezzes, cowboy hats). They had to be moved 
quickly around and stacked in piles. Programmed into the game 
were two animated "helpers," who could dash over to pull hats off 
piles that were in trouble. The helpers were digitized pictures of 
Alexey and Vladimir. 

Another game, for computers, called "Faces," was sold through 
a joint-venture company called ParaGraph to Spectrum Holobyte. 
"Faces" had scrambled puzzle pieces made of slices of the faces of 
famous scientists, painters, and politicians. Players unscrambled 
the falling pieces to create complete portraits. One could end up 
with a face that combined Mikhail Gorbachev's bald head, Marga- 
ret Thatcher's eyes, and Ronald Reagan's chin. "Faces" also had 
digitized images of cartoon characters and paintings (a winking 
Mona Lisa, for instance, and a Van Gogh self-portrait). Players 
could also scan pictures of themselves and insert them into the 
game. The Los Angeles Times reviewer lauded it: "[It doesn't] en- 
courage you to destroy worlds, and errors do not result in gory 
deaths. . . . While playing, you do your part to improve U.S.- 
Soviet trade relations." 

To promote "Hatris," Henk Rogers arranged U.S. visas and 
flights for Pajitnov and Pokhilko for the January 1991 Consumer 
Electronics Show in Las Vegas. The two men had mixed emotions 
about leaving Moscow just then. War seemed imminent in the 
Persian Gulf, and President Gorbachev's swing from Nobel Peace 
Prize-winning divinity to local despot was unsettling Muscovites. 
Still, they said good-bye to their families, though they wondered 
whether they should be taking them along. 

Although by ndw Pajitnov was a veteran of international travel, 
Pokhilko had never been outside the U.S.S.R. The closest he had 
ever come to flying was in a flight simulator he once tried in Mos- 



A2A GAME OVER 

cow, so he was on the edge of his seat as the Aeroflot jet winged 
over the Atlantic Ocean. 

At the Excaliber in Las Vegas, which looked like the castle at 
Disneyland, the receptionist welcomed the Russians to "the largest 
hotel in the world, covering over half a million square feet." After 
they checked in, the hotel staff offered greetings of "Have a royal 
day." 

Amid moats, hourly jousting matches, and restaurants with 
names like Lancelota Pasta, the two men had a day free to get over 
their jet lag. In his black corduroy pants, white polo shirt embla- 
zoned with the BPS logo, and woven sandals, Pokhilko tried his 
hand at blackjack. He won fifty dollars and then lost a hundred. 
Pajitnov enjoyed the spectacle as he sipped a fresh cocktail. 

The next day the two men met Henk Rogers at the BPS booth, 
which was inside Nintendo's grand tent, where the American was 
showing off the NES and Game Boy versions of "Hatris." The 
three of them sat on director's chairs in the booth, wearing hats — 
Pokhilko, a white top hat, Rogers, a black cowboy hat, and 
Pajitnov, a smart ruby-red beret. 

By now Pajitnov had quit smoking, and he showed some heft as a 
result. He said he had quit for his health — America's antismoking 
sentiment had influenced him — and in any case, it was impossible 
to get cigarettes at home. When a friend asked him if the scarcity 
was part of a campaign to improve the health of the Soviet people, 
Pajitnov laughed heartily. "Yes," he said, "and the reason we don't 
get food is to keep us from getting fat." 

When Pajitnov laughed, his eyes shone with a gentle bemuse- 
ment, but there was also a trace of disquiet there. He seemed frail 
despite his bearlike physique. Perhaps it was all overwhelming for 
him. 

Nintendo threw a party on the second night of the convention. 
LucasArts's party the night before had been impressive — the bar 
from Star Wars had been re-created, and Darth Vader posed for 
pictures — but NOA took over the entire convention center at Cae- 
sar's Palace for an unparalleled bash. Near the entrance were Mi- 
chael Jackson and Cher lookalikes. Off to the side, hairdressers 
stood poised to spike, punk, and glitter up the hair of willing 
industry guests. Games soon followed, with prizes that included a 



FOREST OF ILLUSIONS 



Chevy Geo. Arcade video games were set up throughout the ball- 
room, and a blow-up Mario that could have wafted in from the 
Macy's Thanksgiving Day parade floated overhead. 

Vladimir Pokhilko stood at a table eating shrimp and musing 
with Alexey about America. (There were also tables full of tacos, 
pasta, pizza, barbecue, and desserts, not to mention half a dozen 
bars). The news from home was distressing. The Soviet Union was 
retrenching after the first years of glasnost. Gorbachev was tight- 
ening controls on the press as his troops marched into Lithuania in 
the first major crackdown since the Soviet experiment with "open- 
ness." Wolfing down succulent shrimp, Pokhilko was thinking of 
his family in Moscow. He said, "I think it would be very good if our 
families came here and we stayed one, maybe two years. We could 
see what happens from here, where we would be safe." 

"Tetris" fans came by the Bullet-Proof booth throughout the 
next few days of the convention, and Pajitnov gave interviews and 
autographed copies of his games. Through it all, he admitted that 
he had a difficult time dealing with such attention. "At home I 
know none of this," he said. "This is like what a rock star might 
get- 
Thereafter he and Pokhilko left Las Vegas for Seattle, where, 
determined to lose the weight he gained, he fasted for ten days, 
drinking only a little fruit juice. From there he flew to the Bay Area 
looking trim and fit, and he and Pokhilko worked at the offices of 
Spectrum Holobyte in Alameda. They stayed nearby, at the Spec- 
trum Holobyte company apartment, but ventured into San Fran- 
cisco on a few occasions. Pajitnov had memorized much of the 
city's layout from a jigsaw puzzle he had made with one of his sons 
in Moscow. The two Russians took an interest in popular Ameri- 
can pastimes, such as tennis and basketball. They accompanied a 
gang from Spectrum Holobyte to a Warriors basketball game at the 
Oakland Coliseum. Pajitnov delighted in learning new expressions 
in English; a favorite was "oops." The behavior at the basketball 
game stunned him. "Such exuberance," he marveled. 

When word got out that Pajitnov was holed up in Alameda, he 
was courted by representatives from companies everywhere. He 
remained mistrustful; he had come to believe that the video-game 
business was full of dishonest people. He continued to work with 



42B GAME OVER 

Oilman Louie and Phil Adam, but counted Henk Rogers as his 
best friend outside Russia. Most people flattered him when they 
saw his new creations, but Rogers was brutally frank. "This is shit," 
he would say if he disliked a game. Pajitnov would be taken aback, 
but he understood he could trust Rogers. He and Pokhilko agreed 
to sign a contract to work full time with BPS while maintaining 
working relationships with Spectrum Holobyte. 

Together the two Russians made the decision to leave the Soviet 
Union forever. Henk Rogers arranged for their families to come to 
America and helped set them up with salary advances. Alexey's 
wife, Nina, had visited the United States once before. After she 
returned to Moscow, her friends asked her what she had thought 
of America and she couldn't answer; she could only cry. Pajitnov 
knew that she would work with him to begin a new life here, but he 
worried about his aged father, who he knew would never agree to 
leave Moscow. 

Pajitnov found an apartment in a suburb of Seattle, near Bullet- 
Proof's office, which was also not far from Nintendo's headquar- 
ters. Pokhilko settled in Palo Alto, where he worked on Elfish and 
pursued his primary interest, psychology, utilizing the resources at 
Stanford University. 

The Pajitnovs moved into their comfortable two-bedroom apart- 
ment, on the second floor of a condominium complex called The 
Lakes. The "lakes," Alexey said, laughing, were actually yellow 
and murky, with noisy ducks and geese. But his children were in 
heaven as they chased the birds and squirrels. Nina took her time 
in acclimating to life in the United States. Once the children were 
settled in school, she planned to look for work in academia; if 
nothing else, she could teach Russian. Alexey, meanwhile, worked 
on new games. His life, though bittersweet with memories and the 
thought that he had had to leave his father behind, was very good. 

Ideas for games still came to Pajitnov at unexpected moments. 
One day he was driving through a thick coastal fog on a narrow 
road that wound through redwood trees as it ascended a mountain. 
At one point the road shot up so steeply that he had to shift down 
into first gear, hold on tight to the steering wheel, and gun it after a 
deep breath. At the approach to the steepest part of the hill, where 
the last of the fog vanished, the road appeared to swoop up in 



FOREST OF ILLUSIONS 427 

front of the windshield at a near perpendicular angle. Directly at 
this spot was a triangular road sign the color of French's mustard 
that warned, in the blackest of lettering: hill. Under this word, in 
messy script, someone had added the only appropriate commen- 
tary: NO SHIT. 

A short drive beyond the sign was the crest of the hill and a turn- 
off to the right. Farther on, varieties of conifers, with trunks more 
ashen and needles more indigo, seemed to huddle closer together. 
The air rushing in through the window was of a pine scent no air 
freshener would ever re-create. Pajitnov breathed deeply. This 
woodsy Eden was an open-and-shut case for his new home, the 
Pacific Northwest, where resplendent nature existed right in town, 
a mile away from a mall and a wonderful sushi bar. 

Pajitnov slowed the car to a crawl and gazed out his window to 
see the pointed tops of the trees that arced slightly in an eastward 
breeze. Behind him, the fog looked like thick frosting on a big 
white birthday cake. He pulled the car onto the shoulder, switched 
off the engine, and got out. Craning his neck back, he observed 
how the evening sun, filtered through the clusters of needles, illu- 
minated columns of dust in the air. 

Burying his hands in the pockets of his gray parka, Pajitnov 
walked into the forest. It grew darker as the sun steadily sank and 
the trees there grew progressively taller and more closely grouped. 
It was quiet except for his footsteps on the hard-packed dirt and 
the swelling and receding of the evening forest noises. 

Soon he noticed something extraordinary. From the molasses- 
colored bark of the trees were escaping, like bubbles from a bubble 
pipe, perfect tiny icosahedra, spinning on their axes. They drilled 
in wherever they landed, into the bark or the mulchy ground, 
creating small gorges the color and consistency of liquid mercury. 
The rivulets merged into an oval hollow that had the shimmer, 
smoothness, and luminosity of a mirror, though it produced no 
reflection. Pajitnov stared at the astonishing sight in a reverie, and 
it was well past dusk, and impending darkness had painted a ma- 
roon wash over the forest, when he briskly turned back toward his 
car. 

Driving down the hill, Pajitnov was lost in thought, musing about 
the difference between the imagination's view of the forest at night 



428 GAME OVER 



and what was really there. "To re-create the emotions that accom- 
pany that experience," he said, "would be quite wonderful, I 
think." As he drove, he conjured up an image of a video game that 
could simulate not only the process of discovery but the emotions 
accompanying the experience of groping along in the darkness, 
which call one back to one's childhood. "Yes," he said. "It would 
be quite an interesting and wonderful game." 



AFTERWORD 

TD THE VINTAGE EDITION 

THE REAL GAME 

IS JUST BEGINNING 



In an industry that was known for excess and hyperbole, the 
launch of one 1993 game nonetheless stood out. Children were 
breathless, and parents were worried, as Mortal Monday ap- 
proached, the day the home version of "Mortal Kombat," an 
arcade game, would hit the stores. "Mortal Kombat" was the most 
inane, repetitive, and violent game yet — and it was wildly popular. 
It consisted of relentless button thumping by the player with the 
aim of pummelling one of the beefy, repulsive fighters. If it taught 
any lesson, it was that mercy was wrong; you battered your adver- 
sary into unconsciousness and then were instructed to "finish him 
off." This could be accomplished by pulling out his still-beating 
heart or tearing his skull off his body and then holding it up as a 
trophy, the spinal cord dangling. 

Acclaim Entertainment, makers of the game, announced that 
four versions of "Mortal Kombat" would be released: for the 
Super Nintendo system and Game Boy but also for Sega's Genesis 



GAME OVER 



and Game Gear systems. Here was incontrovertible proof that 
Nintendo no longer wielded the clout it once had. Acclaim had 
been one of Nintendo's most prolific, successful, and loyal licen- 
sees but, like almost all of the other licensees, it had signed up 
with Sega, and there wasn't anything Nintendo could do about it. 

Apparently, Nintendo had blown it. There were now about as 
many Sega players as Nintendo players, and Sega was considered 
the cooler brand. NCL was still making more money, much of it 
because of Game Boy, but it was struggling in the 16-bit race. If 
there was any doubt, the two months following Mortal Monday 
showed how much: three million "Mortal Kombat" games sold, 
breaking sales records for 16-bit games, and the more violent Sega 
version outsold the Nintendo version two to one. 

Hiroshi Yamauchi seemed to be watching helplessly while his 
company lost more and more ground. First Sega beat him into the 
16-bit market, which put him in the position of playing catch-up 
when the Super NES was launched eighteen months later. The 
Super NES was a good machine, with better graphics than the 
Genesis, but there was no software that compared to the games 
that had spirited the NES revolution. The biggest-selling game for 
the Super NES wasn't even made by Nintendo; it was Capcom's 
"Streetfighter 2," another violent fighting game, in which one 
could bite an opponent's skull and draw blood. There seemed 
little room in the high-stakes industry for imagination and risk, 
which had once been Nintendo's strongest suits. Aside from 
"Super Mario Paint," little truly new or inventive had been an- 
nounced by the company in several years. 

While Nintendo fought to retain its market share, Sega upped 
the ante again when it released its CD-ROM player. Just as it had 
when Sega launched the Genesis, Nintendo did . . . nothing. Its 
public posture was to dismiss the first wave of CD games as no big 
deal, but Sega sold a million of the units within the year. 

Licensees' games sold a lot of Nintendo's and Sega's systems, 
with sports games selling steadily, games based on movies selling 
sporadically, and fighting games selling enormously. When Ac- 
claim was ready to launch "Mortal Kombat," Nintendo, apprehen- 
sive about mounting concern over the violence in video games, 
insisted that the licensee release a watered-down version of the 



AFTERWORD TO THE VINTAGE EDITION 431 

game for the Super NES. In spite of — or perhaps because of — less 
gruesome graphics, this was soundly trounced by Sega's bloodier 
version. 

There were more defeats, such as the failure, after all the cau- 
tious planning, of the "Super Mario Bros." movie at a time when 
Sonic the Hedgehog cartoon shows took off. Further, Nintendo of 
America's marketing and p.r. wunderkind Bill White left the com- 
pany over a disagreement about strategies — and wound up a cou- 
ple of months later at Sega. But the worst news for Nintendo came 
with the 1993 "Q" survey. It showed that Super Mario was still 
more popular than Mickey Mouse, but that Sega's hedgehog was 
the most popular of all. 

Although Nintendo was still raking in a fortune, Sega was en- 
joying the kind of growth NCL had experienced during its ascent. 
Sega Enterprises still earned a third less than NCL, but it had 
momentum that, analysts predicted, would increase its 43 percent 
share of the total U.S. home-video-game market to 54 percent in 
1994. It had been unimaginable a year earlier that Nintendo would 
be in the number-two position. 

Sega also seemed to be more ready for the future, as evidenced 
by a string of announcements about exciting new technologies, 
including virtual-reality goggles that hooked up to the Genesis; a 
full-body controller; a gamers' network called The Edge, devel- 
oped with AT&T; and a television cable channel developed with 
Time Warner. After all of Yamauchi's boasts about a global com- 
munications network, the Edge, for on-line game playing, and the 
Sega Channel, over which "Sonic" and other Genesis games could 
be downloaded, was a bigger step forward than any Nintendo had 
made. In addition, Sega seemed poised to do battle against the 
next-generation machines that were coming from companies such 
as 3DO: with Hitachi and Microsoft, it was developing a 32-bit 
system that would be ready in Japan by 1994. 

But the game was nowhere near over. First of all, both Sega and 
Nintendo were faced with smaller profit margins because the yen 
was so strong in the last half of 1993 (Nintendo's earnings forecast 
was slashed to $1.14 billion). Moreover, the promised wave of 
competition had begun to hit. 

3DO's machine, manufactured and distributed by Matsushita 



GAME OVER 



under the Panasonic label, was released in the middle of 1993. The 
next year AT&T and Sanyo released 3DO machines as well. Trip 
Hawkins had not only created an elegant 32-bit system, but had 
managed to sign up 350 top developers, so software would be 
plentiful. In spite of a prohibitive price tag, 3DO had a good 
chance of succeeding because its licensing requirements were less 
restrictive than Nintendo's and Sega's, and would allow small com- 
panies with innovative software ideas but little money a chance to 
get into the video-game business. The breadth of software that 
could result would be 3DO's strongest asset. The video games that 
had sold the most hardware in the past were not invented by engi- 
neers in the R&D labs of the big companies. "Tetris" was created 
by a mathematician, and "Super Mario Bros." by an artist. Now the 
Alexey Pajitnovs and Sigeru Miyamotos of the future were more 
likely to be able to do business with 3DO rather than Nintendo or 
Sega. For example, a young designer in San Francisco came up with 
a fantastic new kind of video game — an interactive comic book — 
and easily obtained a 3DO license but found it impossibly expen- 
sive to work with Nintendo or Sega. 

Other well-backed competitors were on the way. New systems 
were coming from Commodore and Pioneer. A revised Sony Play 
Station, dubbed PS-X, would be out soon, and Atari Corp. was 
back again with a contender dubbed the Jaguar, an impressive 64- 
bit machine. 

As with any new industry, a shakeout would come, but in the 
meantime, there was a lot of money to go around. Worldwide, the 
industry's sales for games alone in 1993 were more than $10 bil- 
lion in spite of the global economic recession. In the U.S., video 
games once again beat out the movie business (by $400 million). 
But as video games were being redefined by the new technology, 
these figures were nothing compared to what would come. The 
multimedia and interactive television revolutions being speculated 
about were closer than ever, and they were growing out of the 
video-game industry. 

Now, more quietly than ever, Nintendo prepared to make its 
move. As Sega made inroads into Nintendo's business and new 
companies were proliferating, Hiroshi Yamauchi changed direc- 
tions. The results of a new series of negotiations were finally re- 



AFTERWORD TO THE VINTAGE EDITION 433 



vealed in the fall of 1993. First came the Nintendo Gateway 
System, a multimedia system for captive audiences in planes, ho- 
tels, and ships. Travel information, shopping, and games would be 
offered through a Nintendo-controlled network. Then, following 
this announcement, a press conference was called at the Mark 
Hopkins Hotel in San Francisco. Representing Nintendo, Howard 
Lincoln was joined at the podium by representatives of a company 
that had never been in the video-game business, nor in any con- 
sumer business whatsoever. 

At a time when the video-game companies were attempting to 
make their games look and feel more like movies, Silicon Graph- 
ics, a $1 billion California-based computer company, was making 
movies. The company's state-of-the-art computers had been used 
to create the special effects in Jurassic Park, Terminator 2, and 
many other feature films. Because of their chips, Silicon Graphics 
computers create more sophisticated special effects than any other 
computers in the world. 

When Nintendo announced its press conference with Silicon 
Graphics, an executive of an electronics company that was enter- 
ing the video-game business shook his head. "Just when we 
thought it was safe to get into the water," he sighed. The marriage 
of Silicon Graphics' highly advanced technology and a Nintendo 
home machine was made in video-game heaven. The companies 
were also a good match; Nintendo instantly had the best possible 
game technology in the world, and Silicon Graphics had a first- 
class entry into the consumer business. 

At the press conference, Lincoln and Silicon Graphics' chief 
executives revealed that a machine was coming that would surpass 
any innovations the competition was contemplating. It would in- 
corporate Silicon Graphics chips, including a 64-bit processor, that 
would allow "players to step into a real-time three-dimensional 
world." There would be unbelievably realistic graphics, high- 
fidelity sounds, and phenomenal processing speed. Priced at $250, 
it would be ready for 1995. It was reasonable to assume that this 
could be the best video-game machine ever seen, leap-frogging the 
16-bit, 32-bit, and even other 64-bit systems. Conceivably it could 
trump everyone else. 

If_the biggest if of all, of course— Nintendo and its licensees 



GAME OVER 



could come up with games and multimedia applications that 
would take advantage of such power, Hiroshi Yamauchi could not 
only return Nintendo to the position of undisputed leader of the 
video-game industry, but he could take it beyond the limited 
video-game business to be one of the strongest multimedia- 
entertainment companies of all. The industry had grown too big 
and complex for this to be a certainty, but the announcement 
proved that one thing had not changed. Howard Lincoln was cor- 
rect: It would be a fatal mistake to underestimate Nintendo. 

—David Sheff 
January 1994 



History of Nintendo 




With a history that spans more than 
100 years, Nintendo's electronic- 
game success has evolved from its 
roots as the manufacturer of stylish 
Japanese playing cards or hanafuda. 



Nintendo expanded its line of playing 
cards in 1959 to include a set for children 
that featured Walt Disney characters. 





Nintendo's Laser Clay Ranges, light-gun shooting galleries first opened in 1973, were 
hip spots but nearly led the company to collapse when Japan's economy tightened. 




Driven by the budding calculator 
market, Nintendo launched a 
series of pocket games called 
"Game & Watch," which fea- 
tured a game and digital clock 
In one diminutive unit. 



New Game & Watch units 
became a great way to 
introduce new hand-held 
games as well as keep- 
ing Nintendo-created 
characters 





As its characters became more 
popular, Nintendo builds on its 
worlds by releasing new prod- 
ucts featuring derivative char- 
acters and story-lines, such as 
those inspired by Mario and 
Donkey Kong. 




With the Japanese launch of the 

Family Computer (or "Famicom," 

as it was commonly called), 

Nintendo started a wave in 

home-entertainment that would 

make it a household name 

worldwide. 



The Nintendo Entertainment 
System (shown here with 
some accessories, includ- 
ing "Robotic Operating 
Buddy" or "R.O.B.") revived 
the video-game market in 
North America after its 
release in 1985. 





Game Boy, a portable gaming system, 
was introduced in 1989. While it wasn't 
a technological marvel, offering fairly 
crude monochromatic graphics, it has 
gone on to spark many spin-off prod- 
ucts and has sold around 70 million 
units worldwide through 1998. 



Nintendo followed up the 
Famicom/NES success in 1990 with a 
more powerful game system called 
Super Famicom. Shown is its North 
American counterpart, Super 
Nintendo Entertainment System (bet- 
ter known as Super NES or SNES), 
released in 1991. 





In 1993, ten years after the original 
system came out in Japan, 
Nintendo released a sleeker, less- 
expensive version of the Family 
Computer. A similar updating of the 
NES was unveiled in North America. 



The Super Game Boy cartridge, 
released in 1994, enables gamers 
to play Game Boy cartridges on 
their Super NES system. 




ACKNOWLEDGMENTS A 3 5 

ACKNOWLEDGMENTS 



This is my opportunity to ackowledge the invaluable assistance I received in 
the preparation of this project. Thanks go to many people for making the 
new content in this updated edition shine. 

First and foremost, to David Sheff, for creating a comprehensive and thor- 
oughly entertaining trip through a wild era in the development of the inter- 
active entertainment industry. I hope my new chapters are a good fit and will 
carry the torch a little further. 

I wish to thank all of the people at Nintendo of America, who opened their 
company's doors in many ways and enabled us to gather the material for this 
book. Their names are too numerous to mention, but this list would include 
everyone from the company's head executives to the receptionists that greet 
visitors and callers to the Redmond complex in Washington. 

The opportunity to undertake this project was an exciting one, and I have 



43 6 ACKNOWLEDGMENTS 



to thank President/Publisher Hal Halpin and Editorial Director Mike Davila 
for trusting me with it. The hard-working staff of CyberACTIVE Media 
Group, Inc. should be commended for their tireless efforts in getting this 
project from raw word-processing documents and photographs to what you 
are holding in your hands now. 

A deep bow and a tip of the cap go to Chris Bieniek, Zach Meston, Dan 
Amrich, and Dave Karraker for their contribution to the factual accuracy of 
the new chapters. Similarly, much appreciation goes out to the many name- 
less and faceless creators of websites on the Internet— professional and ama- 
teur alike— whose various archival and historical accounts enable quick and 
valuable research. 

Last but not least, my debts are emotional as well as intellectual. I'd be 
remiss not to recognize my family, who, year after year, share with me many 
new project— and the gripes, groans, and grins that go along with them. I 
couldn't possibly thank them enough for the equal doses of patience, inter- 
est, encouragement, and proud support they provide. 

—Andy Eddy 
January 1999 



PREFACE 437 



PREFACE 



I became very good at predicting the Next Big Thing, not because of any 
supernatural or even analytical abilities, but because of an oracle in our 
house: my eldest son, Nicolas. Nicolas has uncanny instincts to glom onto 
many fads that eventually become sensations. His track record is impres- 
sive. Nick never cared much about many products that were promoted as 
the NBT but came and went after their fifteen minutes of fame, he became 
obsessed — months if not years before they caught on in the mainstream— 
with a succession of winners: Pound Puppies, My Little Ponys, Teenage 
Mutant Ninja Turtles, Transformers, and myriad revivals of toys based on 
X-Men, Star Wars, Batman, and Star Trek. He was quoting the Simpsons, 
Beavis and Butt-head, and X-Files at least a year before they were on the 
cover of national magazines, and he played (loudly!) CDs of bands, like 
Metallica, Beck, and Nirvana, before they became bestsellers. It's true 



438 PRESS START TO CONTINUE 



that he briefly adopted the Kris Kross backwards-clothes thing, but no 
one's perfect. 

Nick, when he was six or so, introduced me to Nintendo — the video- 
game system had barely arrived on American shores. I first noticed the 
word "Nintendo" in some of his odder conversations with his friends. 
Typically, he would say something like, "May I go to Alex's to play 
Nintendo? We're at the fourth level where there's a mini-boss who can't 
die unless you hit him with four bombs from the Princess." I'd shrug. 
"Fine," I'd say. "Be home for dinner." 

I didn't pay much attention to Nintendo until that Christmas season, 
when Nick included a Nintendo Entertainment System in a painstakingly 
considered letter to Santa Claus. Since he had been "good" that year, or 
so Santa concluded, it was my job to shop for the items on the list. I duti- 
fully headed to the toy store and found the bright box containing the NES 
and the original "Super Mario Bros." game along with other games on his 
list called "The Legend of Zelda" and "Metroid." 

He was very happy on Christmas morning. 

I fussed with the connectors and hooked the system up to the TV set. 
It was only then that I began to comprehend the importance of Nintendo. 
First, I watched the compulsive way that Nick and his friends played the 
games. If I presumed to interrupt them, only to ask if they wanted a snack, 
they'd grunt. Their conversations, when not playing, were about the 
games (in their new language, Nintendo-ese), and they increasingly 
seemed to live in an alternative universe, populated by the characters and 
facing challenges from the games. 

But I didn't truly fathom the power of the NES until I myself sat down 
to play with him. Nick was an ace, whereas I was pathetic, instantly 
"dying" as I manipulated the tiny on-screen Mario or Link off a cliff. I did 
improve. Soon I learned to maneuver around cliffs and dodge fireballs, 
and I could hold my own against Nick and his friends, though I could 
never beat them. Then there were even nights when I found myself play- 
ing the NES by myself after Nick was sound asleep, dreaming (presum- 
ably) about Goombas and Princess Toadstool. 
This wasn't just another toy. It was an obsession. 



PREFACE 439 

We spent more time playing the games, discussing strategies, invent- 
ing stories based on the characters, calling the Nintendo game counselors 
for tips, and postponing dinner until we beat a particularly challenging 
"villain." When, after countless hours, Nick and I actually won a game, 
we were elated and celebrated the victory with a trip to the toy store to 
buy more games, including the most addictive of all, "Tetris." 

Were we, in our small corner of the globe, the only ones obsessed? The 
question was answered one morning when I picked up a newspaper. This 
was in 1990 — George Bush was in the White House, Iraq had invaded 
Kuwait, Goodfellas was released, and Nick had turned eight — when the 
current "Q" poll results were reported in USA Today. The "Q" ratings, 
based on surveys, rank the most popular personalities and icons in the 
nation. That year's poll indicated that American children recognized 
Nintendo's star, Mario, more than Mickey Mouse. More than Mickey 
Mouse! Something big was under foot. Most adults were oblivious, but 
Nintendo had infiltrated the consciousness of our nation's children. 

The insight caused me to do some reporting, and I came upon facts that 
would later "stun" The Wall Street Journal — readers of my book. 
Nintendo, the company that had appeared from nowhere (as far as the 
American computer and video-game industries were concerned), con- 
trolled 90 or so percent of America's $8 billion video-game industry. 
According to an article in a Japanese business journal, Nintendo had 
become Japan's number-one competitive company, surpassing Toyota, 
which had held the record for years. Nintendo was also Japan's most prof- 
itable company, with nets that were higher than IBM's, Microsoft's, 
Apple's, and all the movie studios combined. Other stunning facts were 
that Nintendo was using more than three percent of all the semiconduc- 
tors made in Japan and its magazine, Nintendo Power, had become the 
largest subscription magazine in the U.S. for children and teenagers. 

I saw a story here and convinced the editor of a new magazine, Men's 
Life, who sent me out on my first visits to Nintendo of America in Seattle 
and Nintendo Company, Ltd. in Kyoto, Japan. These were my first 
encounters with the masterminds of Nintendo's invasion into the U.S., 
European, and Japanese markets. In the course of researching the article, 



440 PRESS START TO CONTINUE 

I also interviewed numerous other people in the video-game industry, 
including its founders and representatives of its relatively new competi- 
tors such as Sega and Electronic Arts. I spent time with game designers, 
ad men, toy-store managers, teachers, and kids. 

The article appeared in Men's Life, and I heard from a wide array of 
people. Some were impressed by the business acumen of a company that 
they had barely heard of. Some were horrified that another American 
industry was being lost to foreign competition. Some parents and educa- 
tors worried about the impact of games on kids' health. Many insiders in 
the game industry had stories about Nintendo; the company was both 
praised and vilified. No one was neutral about Nintendo. 

I realized that the article examined what was the tip of a business and 
social iceberg. Based on the responses and the voluminous material I'd 
gathered that was beyond the article's scope, I proposed a book about 
Nintendo and the burgeoning video-game industry. My editor at Random 
House was Joe Fox, who was widely revered in the publishing industry. 
But Fox, who had worked closely with Truman Capote and many other 
great writers, was no techie. In fact, he used a typewriter, not a comput- 
er, and played one game — chess. Nonetheless, Fox agreed that there was 
a book in the phenomena I'd discovered through Nick. 

The following year and a half was devoted to researching and writing 
Game Over. When it was ready to go to press, Nintendo, after originally 
agreeing to allow Random House to use an image of Mario on the jacket, 
withdrew its permission. Phone calls between the game company and pub- 
lishing house were many and furious, but Nintendo refused to reconsider. 
So the Random House art director hastily constructed an effective cover 
around a new image: a child staring hypnotically at a glowing TV monitor. 

When the original edition of Game Over was published in 1993, the 
video-game industry was having a banner year of worldwide sales: $8 bil- 
lion in games alone. Nintendo was still the industry's leader, though Sega 
was coming on strong. In addition, Sony and a new company called 3DO 
were about to enter the industry. Congressmen were beginning to reflect 
the latest threat to children: Nintendo's system. 

The book received a great deal of positive attention. Besides gratifying 



PREFACE 441 

reviews, I heard that it had become an assigned reading in a growing num- 
ber of university business courses around the country. In addition, it was 
viewed as required reading for anyone entering the video-game industry. 
Parents and teachers, concerned about the impact of video games on chil- 
dren, packed my promotional appearances around the country and flooded 
the caller lines on radio talk shows. (Their concerns lead to a spin-off 
book, A Parents' Guide to Video Games, in which I addressed the social, 
psychological, and political issues raised by Nintendo and its competitors.) 

In 1994, Vintage released the paperback edition of Game Over just as 
Nintendo launched the best game system the industry had seen up to that 
point (better than the newest Sega and Sony systems), the N64, with a phe- 
nomenal new "Super Mario" game. Nintendo no longer owned the indus- 
try, but it was pushing it forward, setting a new standard. Nicolas, who was 
12 now, had grown tired of the earlier NES and its successor, the Super 
Nintendo Entertainment System, but was excited by the N64; he and I 
were once again having competitions, some lasting until late into the night. 
One thing hadn't changed: Nick still beat me mercilessly. 

Parents know that a few years make a big difference in the lives of chil- 
dren. Nick is now 16. He's interested in music, movies, books, his school 
newspaper, water polo, and swimming. He's once again predicted a new 
sensation when he became obsessed with surfing, one of the country's 
fastest growing sports, at least on America's coastlines. But Nick hasn't 
played a video game in a couple years. 

However, Nick has a much younger brother, Jasper, and sister, Daisy. 
I haven't yet determined whether they have their older sibling's ability to 
be an earlier adopter of the biggest trends of the future, though two of 
Daisy's first words— she's only two— were "Beanie Babies." Meanwhile, 
the other day, Jasper, who is four and a half, climbed up onto my lap and 
told me he's been thinking about starting a letter to Santa Claus in antic- 
ipation of next Christmas. I asked what he would include and he recited 
the list. "I want a pirate hat, sword, and hook," he said. "And Dad, what 
I really want is "Banjo-Kazooie." It's an awesome game." "Banjo- 
Kazooie," for the uninitiated, is a recent hit Nintendo game. 

The publication of this special third edition of Game Over by 



442 PRESS START TO CONTINUE 

CyberACTIVE Media Group, Inc. arrives at an exciting time in the still- 
thriving video-game industry, which now has sales of $8 billion even as 
the Internet and new multimedia systems continue to push the limits of 
gaming. It also arrives at an interesting time in our home. At the end of 
'98, 1 burrowed into our storage closet and pulled out our dusty N64. 

—David Sheff 
January 1999 



"RIDING THE HARDWARE SEE-SAW AA3 



Chapter 1 

RIDING THE HARDWARE SEE-SAW 



In its short history, the video-game business has seen many hardware plat- 
forms hit the market. As technology has taken leaps and bounds, it has dri- 
ven the release of more powerful game consoles, each generation providing 
better sound quality, more colorful graphics, and increasingly immersive 
gameplay. 

Cartridge systems, like Atari's 2600 and Mattel's Intellivision, which 
started the home game craze, were cutting edge in the early '80s, but the evo- 
lution of gaming hardware in just a few years made them look like antiques 
compared to Nintendo's Nintendo Entertainment System and Sega's Master 
System of the late '80s. 

As a result, the realism of game software has taken directly proportional 
strides forward. The stark black-and-white of "Pong" advanced to better ani- 
mation and color in "Pac-Man," which in turn gave way to more vivid 
imagery in recent games, like Sega's "Sonic the Hedgehog" and Nintendo's 
"Super Mario" series. 

However, as the software continues to improve, there has to be a platform 



AAA PRESS START TO CONTINUE 

that the software plays on — one that is continually improved so as to enable 
the game designers to add more hues to their electronic paint brushes; to 
boost the quality of the animation away from jerky flip book-like scenes; to 
smooth vision that hopefully will make the players forget they're watching 
a game; to create lush soundscapes with realistic sound effects and chatter 
from the onscreen characters. 

While it's the software that seems to impress — indeed, the software is 
generally what people remember and talk about — there needs to be a solid 
hardware platform. The problem in the gaming industry is that each genera- 
tion of hardware lasts roughly five years or so. Indeed, as computer tech- 
nology has made serious strides in the last 20 years, those leaps can be equal- 
ly tracked in the game consoles that have hit the market, as the number of 
"bits" indicated of the system's brain power. 

Nintendo's NES and Sega's Master System filled living rooms in the mid- 
to-late '80s. Those were followed by improved systems, like Sega's Genesis, 
NEC's TurboGrafx-16, and Nintendo's Super NES (SNES), in the early 
'90s. Subsequently, Sony's PlayStation, Nintendo's N64, and Sega's Saturn 
were the entries for the mid-to-late '90s. Indeed, in the fall of 1998, Sega has 
already introduced its "next-generation" Dreamcast platform in Japan, with 
the plan of bringing it out in North America in late 1999. Both Sony and 
Nintendo — being challenged by other companies — expect to have their new 
game console at the turn of the century. 

With the rapid leaps made by the system hardware manufacturers, it's a 
real battle to keep the player interested in one brand and develop a unit that 
will adequately compete with similar products for the next half decade. 
Perhaps Nintendo's near monopoly with the NES during its run gave the 
company the feeling it was invincible, or maybe it was just a blend of cock- 
iness and confidence that caused it to falter initially in its next battle with 
Sega: The "Genesis vs. Super NES" match started with Sega's having a two- 
year head start on the SNES' 1991 launch, creating a see-saw ride that would 
see both companies jockey for the lead spot in hardware sales. 

Nintendo's Peter Main, executive vice president in charge of sales and 
marketing, saw it as a planned pace that ended up working out in Nintendo's 
favor. That the battles along the way didn't give Nintendo a market share to 



RIDING THE HARDWARE SEE-SAW 445 

the extent that it had with the NES— a situation that is likely to never hap- 
pen again in the gaming industry — doesn't matter as much to Main as the 
end result of the entire war. 

"We hate being last on any count, share-wise or any-wise," Main states. 
"But our history speaks for itself in that we have been very reluctant to sac- 
rifice what we saw as a necessary amount of time to get the product right — 
to get the software right or the hardware right. We were coming off the NES, 
we were enjoying a very strong share position there. The other guys decid- 
ed to go to market early in an effort to try and jump-start the [next genera- 
tion]. We really had to look at how much business was still to be done on the 
8-bit [NES], but more importantly how much work was still required to pro- 
duce the initial software that we needed for the 16-bit [SNES]." 

"So would we have liked to come out of the starting gate together? That 
would have been nice, but I don't think at the end of the whole 60-month 
process where they got a jump — [TurboGrafx-16] fell right out of bed, and 
Sega fell out of bed in the back half of that program. We ended up in a dog- 
fight that had two strong guys splitting the market 55/45 or something like 
that, when the dust had settled. We met our objectives in terms of how much 
we wanted to sell and financial rewards that went with that." 

But the battles were hard-fought, and if the hardware is equated to a razor, 
the software is the "blade" that the gamer needs — with fresh blades required 
on a frequent basis. Sega had lined up some enticing blades for the Genesis, 
which really took off when "Sonic the Hedgehog" was introduced and 
Capcom made a version of its popular "Street Fighter" arcade game for 
Sega's system. 

Sega also went on a marketing tear, hammering consumers with catchy 
phrases and the "Sega Scream" ending each commercial. An underlying 
message to gamers was Sega was the more grown-up system, while 
Nintendo's offerings remained more like a toy for youngsters. 

"In 1992, 1993 and on into 1994, we had it taken to us," Peter Main 
recalls. "Sega said, 'Sega does what Nintendon't, and we've got more 
aggressive product: martial arts, sports and racing games. They 
don't...they're just relying on that kid's stuff. We're for older people, and 
they're for children' ." 



AA-B PRESS START TO CONTINUE 



"I think the industry, first of all, has certainly gone a long way from where 
it was in the '80s, when it was seen as a bit of an outgrown of the arcades. 
We were trying to balance between the public's perception of what kind of 
person hung around the arcades with a very strong image of something that 
was close to motherhood: This is great. Your kids will love it. You can rest 
assured that this is solid, solid entertainment for them.' We still believe that 
that's a very important, key attribute of our mainline product. I think, how- 
ever, as the industry did grow, as game players went from a median age of 
eight or nine to a median age of 16 or 17, that started to say things about the 
types of products and types of appeals that would be made to attract those 
players to it." 

The market was also reshaped by the increased scrutiny that Nintendo 
faced from the government and the ensuing media coverage over its business 
practices. In the NES generation, Nintendo managed to keep a lot of the 
exciting software titles and developers locked up for itself through exclusive 
contracts, leaving Sega to rely mostly on its own games; unfortunately, it 
wasn't enough to compete with any real success. However, Sega's headstart 
with the Genesis coupled with Nintendo's backing off on some of the 
shrewd — some would say illegal — practices it used to create the NES' mar- 
ket ownership made for a whole new ballgame. It put Nintendo in the unfa- 
miliar catch-up position. 

Nintendo did catch up, however, at least to a mostly neck-and-neck posi- 
tion with Sega by the mid-'90s, on the strength of its software offerings. This 
came courtesy of a drive to create solid software that would bring players of 
all games back to the Nintendo camp; for example, the Ken Griffey baseball 
games, brought a slice of the older sports market. The company also insti- 
tuted an image change that slid the company from its toy foundation into a 
grungier, more raw edge — dare it be said, "cool." 

Sega tried to bridge into the next generation in mid- 1994 with 32X. This 
system, instead of being a stand-alone console, piggybacked onto the 
Genesis with the promise of boosting the 16-bit system into a 32-bit power- 
house. While that may have been what was stated in the business plan, little 
software was released for it, and there was no vivid demonstration of the 
technology boost that the hardware was supposed to deliver. As a result, 



RIDING THE HARDWARE SEE-SAW 447 

software developers never jumped on the 32X, and it disappeared from the 
scene not long after its introduction. 

Sega immediately turned its efforts to concentrate on its next console, to 
which 32X was supposed to pave a smooth path. Though 32X didn't jazz the 
game community, getting a jump on the competition seemed to be Sega's 
formula for success, and the company was confident that the mid- 1995 
release of its 32-bit Sega Saturn would turn heads — and open wallets — as 
Genesis had after its 1989 introduction. 

However, hot on Sega's heels was a company that was destined to draw 
attention. Though new to the game-hardware market — and not having made 
a killing in its previous software efforts for Sega and Nintendo systems — its 
name did bring some cachet in the consumer-electronics arena. 

Remember Sony, and how its PlayStation was originally designed to have 
a cartridge port that would accept Super NES cartridges? 

Sony followed through on its promise to bring out the PlayStation, but the 
Fall 1995 model turned out to be an entirely new game system from what 
had been initially planned. The previously described falling out between 
Sony and Nintendo did keep SNES compatibility out of the plans, prompt- 
ing Sony to go with a proprietary system — and undoubtedly a mission to 
make Nintendo regret its decision not to follow through on the originally 
promised partnership. 

Nintendo's Howard Lincoln looks back on the decision with mixed emo- 
tions crossing his face and tingeing his words. Though no one can tell what 
would have happened if Nintendo went with Sony instead of going with 
Philips. "At the time, we were doing what we did at Mr. Yamauchi's direc- 
tion," Lincoln remembers, "and it all made a great deal of sense, and we had 
a heck of a lot of fun doing it. But we certainly knew we had deeply offend- 
ed Sony. I don't think there was any question about that — it didn't take years 
to know that we'd upset them. At the time it seemed like the correct busi- 
ness decision." 

In fact, Lincoln continues to espouse his belief that after the dust settled 
on this messy chapter in the Nintendo's long history, the end result served to 
fuel the industry's overall growth, which plays a positive role in the revenues 
of all involved. 



4<48 PRESS START TO CONTINUE 

"Quite frankly, I don't regret that they got into the video-game business, 
because I think that's actually been positive for the industry overall, and I 
think it's actually made Nintendo a better company by having that level of 
competition. We are doing a much better job in the marketplace. We're mak- 
ing better products. We're executing across the board better, in large part 
because we have a very tough and able competitor." 

Peter Main concurs on that point, emphasizing the company's philosophy 
not to over-analyze what's been done, instead, working on upping the qual- 
ity of the current and future product line. "Having a strong entrant like Sony 
has helped grow business to a bigger level," Main points out, "and as we 
chase our own fair share of it, we're realizing some good rewards out of that. 
We don't spend a lot of time thinking about deals from '92 or '93." 

A head-to-head-to-head game-system competition between Sega, Sony, 
and Nintendo was shaping up, but it would have to wait until the Fall of 1996 
in North America, as Nintendo again paced itself by continuing to sell its 
Super NES and prepping its Nintendo 64 for release. Prior to that, Nintendo 
took a mid- 1995 spin with an innovative yet odd 3D concept system called 
Virtual Boy. 

Virtual Boy was another brainchild of Gunpei Yokoi, who had invented 
the Game & Watch and Game Boy while at Nintendo. It was not, however, 
a natural evolution from other game systems before it, either in look or in 
gameplay. Sitting on a tabletop atop a couple of stylish legs, Virtual Boy 
looked like some futuristic microscope, high-tech binoculars or a mechani- 
cal creature out of Star Wars. To the player who looked through the visor, 
Virtual Boy provided an added depth with its simulated 3D in games that 
included boxing, tennis, and even a variation on "Tetris." 

While making itself a unique niche in Nintendo's arsenal of products, 
Virtual Boy never caught on with consumers. Most would point to the red- 
on-black graphics, which were vivid yet simplistic, as a major negative to 
the system's success. Additionally, the fact that you had to press your face 
up against the visor to see what was going on meant it wasn't an easily 
shared activity. 

When it came out, Virtual Boy was priced at about $180, hardly in the 
same affordable realm as the Game Boy. And, again, the lack of a user base 



"RIDING THE HARDWARE SEE-SAW 449 

contributed to light development commitments, which kept the software 
library very low, particularly in North America. With all that against it, 
Virtual Boy was soon selling at major clearance prices, exciting few others 
than collectors. 

Nintendo certainly was disappointed by the failure of the system, but in 
retrospect Peter Main sees the bright side of it, not only for what the com- 
pany learned from Virtual Boy's failure, but also as an opportunity to relish 
the competitive aspects that surfaced around it. "The good news is, in its 
launch in the Fall, it sold more product than Saturn did, which says some- 
thing," Main mentions with a laugh. "I was sorry that certain key executives 
at Sega left before I was able to deliver the 50-pound bag of dog food to 
them, they having described this as the 'dog of the year.' We outsold them 
and we got out." 

'Interesting idea, and somewhat of a focus on breakthrough technology 
consistent with our ongoing beliefs that you gotta do it differently, and the 
difference has to be a real perceived difference by the consumer. This one 
had the potential for doing that, but was never adequately supported in terms 
of full development effort. One thing that I guess we learned out of it, as 
Sega did before us, is that working on two brand new platforms simultane- 
ously with a finite number of creative and competent game developers is a 
very, very tough proposition." 

Having a product fail in the market isn't necessarily a life-or-death situa- 
tion — particularly in Nintendo's case, with plenty of finances and other 
resources that enable testing the waters with a new product and not suc- 
ceeding — but the Virtual Boy debacle was seen as the impetus for Gunpei 
Yokoi to leave his accomplishments at NCL behind. After departing NCL, 
Yokoi started the Kyoto, Japan-based Koto Co., which was about to launch 
his own toy company. Unfortunately, he was involved in a minor car acci- 
dent in October 1997, and, upon leaving the vehicle to check the damage, 
was struck and killed by another car passing by. 

Howard Lincoln details a chain of events that fell into place after the 
Virtual Boy bust, ending in a situation that left the company and many of the 
veterans in th